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PHILADELPHIA-An estimated 3.5 million sf of new retail space was delivered to the local MSA this year, and less than 2 million sf will come online in 2003, according to research by the local office of Encino, CA-based Marcus & Millichap. “Philadelphia (retail) has certainly not escaped the effects of recession, but it has not suffered as badly as other cities,” says Jeffrey R. Algatt, regional manager of the M&M office here.

Retail vacancies rose from 8.5% in 2001 to 9% this year, and the report forecasts vacancies to peak at 9.3% next year. Meanwhile, “rents continue to grow at 2% over the past 12 months,” Algatt says, “and will enjoy further increases, given the lack of new inventory coming online.”

Algatt says the average retail rental rate is estimated to end 2002 at $16.80 per sf, up slightly from $16.61 per sf in 2001. In 2003, the average rental rate is forecast to rise by an additional 2%, to $17.10 per sf.

“Dollar sales volume was high, due to several large transactions of medium-sized shopping centers, and single-tenant net lease transactions have been plentiful,” Algatt says. “As of mid-2002, overall sales volume was on pace to exceed the volume of any of the last few years.

“The faltering stock market and low interest rates combined to attractcapital from stocks, bonds and other investments toward the bricks and mortar of commercial real estate,” he explains. “Sales volume in 2003 should be consistent with 2002 and investors will favor retail properties, as they will continue to outperform the office and apartment sectors.”

The report also suggests that home refinancing put more cash in consumers’ wallets, “keeping local retailers in the black.” Philadelphia-area retail sales grew at an average year-over-year rate of 3.8% from January 2000 through June 2002, according to the research.

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