Retail property sales, rents on the rise in Center City

Sales of retail properties in Center City have soared over the last two years and have commanded big numbers as downtown High Street retail is increasingly becoming a preferred asset for investors of commercial real estate.

A total of $197 million in transactions have been tallied over that period, according to a new research report by CBRE Inc.

Retail rent growth has outpaced office and apartments.

That figure would actually be bigger since it excludes Macerich’s $126 million investment in the Gallery as well as sales of mixed-use properties that have a retail component. Even without those deals, the data underscore the heightened investment activity in the market, the report said.

The average sale price on a per square foot basis has climbed, reaching $369 a square foot although some individual properties have traded at far greater numbers.

For example, Allan Domb paid, $30.6 million, or $1,275 a square foot for 1801 Walnut St.

A limited partnership bought 57-63 N. 3rd St. for, $5 million, or $1,014 a square foot. Stoltz Management has reportedly bought the Brooks Brothers building at 1513 Walnut St., for around $1,000 a square foot.

While Philadelphia is seeing some big numbers, there’s still room for improvement. The average sale price of retail property in Manhattan is $1,179 a square foot.

While sale prices are rising in Philadelphia, so are rents. A survey of asking rents on retail space in prime locations in Center City shows they have soared to $225 a square foot in some cases.

Drilling deeper into the data shows that rents that have been achieved in actual lease transactions over the last 24 months are significantly lower than the asking price yet still at record levels.

Rents along Walnut Street between Broad and 19th streets, the sweet spot in the city’s retail scene, rose by 15 percent to reach their highest level ever of $154 a square foot.

All told, the CBRE report shows growth in retail rents in Philadelphia have outpaced that of office and apartment properties. Where Center

City office rental rates have more or less stagnated or shown modest increases and apartment rates have nudged up by 40 percent since 2001, according to CBRE. Retail rents along Walnut Street jumped by 220 percent over that period.

While that has made retail sought after by investors, it is also affecting those owning office buildings. With retail rents rising faster than office rents, landlords are looking to create value with by incorporating more retail uses in the first, second and third floors of their buildings. That is also being used as an amenity to attract office tenants.

Three main reasons are driving the boost in Center City’s retail scene, said Ian Anderson, director of research at CBRE.

More people are living in Philadelphia and visitors to the city, from conventioneers, tourists and even those attending parent’s weekend at the University of Pennsylvania and other schools, mean more foot traffic and spending, he said.

The population moving into the city have higher salaries and more disposable incomes and, consumer preferences for shopping has changed, Anderson said. The enclosed mall shopping experience has lost some its luster.

A report issued last year by Center City District also showed that the Center City retail scene continued to gain momentum.

The CCD report also credited the rise in millennials living in the city as playing a role. The demand and buying power of this group has translated into attracting a diverse mix of retailers – 250 apparel stores, 133 food and drink establishments, and 444 full-service restaurants – and grabbed the attention of national chains.

Source: Philadelphia Business Journal