PHILADELPHIA-The three-story, 11,516-sf building at 1604 Chestnut St. has traded for nearly $2.5 million, or 212.75 per sf, at a cap rate just shy of 5.4%. Payless ShoeSource currently leases the entire building, but occupies just 2,876 sf on the ground floor plus the basement for storage, while the top two floors are vacant. Payless has just exercised its final option of five years on a triple-net lease.

The Taylor-Zang retail group of the local office of Marcus & Millichap, led by senior associate Dean Zang and Mark Taylor, senior investment associate, represented both the buyer and the seller. Both are entities identified only by the property’s address. Dean Zang says there were a half-dozen offers within the first week of marketing, and within two weeks, the winning offer was struck at 98% of the listing price.

This is despite his acknowledgment that the market is “slowing or correcting itself due to the changes in the capital market,” he says. “The buyer-types ranged from a New York City 1031 buyer to several well known local groups, and it exemplifies that assets in A locations are still in high demand.”

Built in the 1930s, the building has interesting architectural features. The location is just across from the Shoppes at Liberty Place and within two blocks of Rittenhouse Square, which gives it high traffic and a strong daytime population. However, the chief advantage comes from the revitalization of Chestnut as a retail corridor, which Zang says, “has benefited from the flow of retailers seeking to enter the marketplace.

“Many national names, unable to lease space on Philadelphia’s ‘Fifth Avenue’ (Walnut Street, one block to the south), have migrated to an alternate location on Chestnut,” Zang says. Among them are Sephora and regional boutiques, such as South Moon Under, and further east, the West Elm and Mitchell Gold + Bob Williams furniture stores.

On condition of anonymity, a Center City retail broker tells that asking retail rent rates along Chestnut are rising at about 30% a year. The average, according to this source, now approaches $50 per sf.

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