Need for Retail Space Expected to Drop

PHILADELPHIA-A Marcus & Millichap second quarter retail report predicts slight upticks in both retail rents and vacancy. The report also states that the slower economy will lower consumer spending and lower the demand for space, according to the second-quarter Retail Research Report in Philadelphia by Marcus & Millichap.

The report declared that employers are forecast to add 3,000 jobs, which is a 0.1% increase. The report also claims that nearly two million sf of new retail space will open this year.

“Lenders will continue to make distinctions on assets’ credit quality and location, driving up cap rates for lesser investment-grade tenants,” Spencer Yablon, director of corporate affairs in the Philadelphia office of Marcus & Millichap, says in a prepared statement. Calls to the Marcus & Millichap office were not returned by deadline.

John Wilson, retail broker and associate director of retail services for Cushman & Wakefield in Philadelphia, tells GlobeSt.com that the report is “very accurate as far as capital markets are concerned. The deals just aren’t happening,” says Wilson. “Maybe the high end deals aren’t coming into this city.”

Marcus & Millichap’s report predicts retail vacancy will hit 7.4% at the end of the year, while asking rents will rise 1.4% to $20.19 per sf and effective rents will jump 0.8% to $18.28 per sf.

“Vacancy is a little higher than last year, but it’s not high,” Wilson says. “Center City rents are increasing, but the increase is smaller, not a large bump.” In Center City, Wilson notes that the options are very select. “People are still looking for sites. The downfall in Philadelphia is that there isn’t enough select space. The vacancy that is available is smaller. It’s just a matter of fitting the tenant in the right space.”

Wilson mentioned the Comcast Center’s floor level retail spots were 100% leased and doing very well. Rents are increasing on Walnut Street, he says. On Broad and Walnut streets, Wilson says he is seeing rents of $120 per sf while towards Rittenhouse Square five blocks away he¹s seeing them at $150 per sf.

One of the strong points of Philadelphia is the city itself with its professional sports teams, college campuses and historical landmarks such as the Liberty Bell, according to Wilson. “There is a large attraction for tourism. It holds its own in Philadelphia,” says Wilson. “You constantly see buses coming in with loads of kids.”