Ever since discount designer-apparel department store
Century 21 signed on in April as an anchor tenant in the Gallery at Market
East, retail analysts have speculated what else might move in. Among the names
dropped: "fast fashion" brands such as Uniqlo and Forever 21. Maybe a
high-end movie theater.
Now that Gallery owner Pennsylvania Real Estate Investment
Trust (PREIT) has struck a partnership with retail developer Macerich Co. - a
joint venture to redevelop the struggling Center City shopping mall - industry
observers have a better clue.
The renovation likely will cost at least $200 million,
analysts said. Santa Monica, Calif.-based Macerich, whose properties nationwide
include Deptford Mall, has agreed to invest $106.8 million in the Gallery, the
companies announced Tuesday.
"The partnership makes a lot of sense," Douglas J.
Green, a principal with retail consultancy MSC in Philadelphia, said Wednesday.
"Macerich and PREIT have similar tenants, but PREIT brought in Macerich
because they have downtown, urban mall developments" such as Kings Plaza
in Brooklyn and Cross County Shopping Center in Yonkers, N.Y. "PREIT
doesn't, they have expertise in suburban malls."
PREIT owns 10 enclosed malls in the Philadelphia area,
including Cherry Hill, Moorestown and Willow Grove Park.
Potential new Gallery tenants would likely include
"affordable luxury" brands in shoes and apparel, as well as food and
entertainment companies to which Macerich leases space elsewhere, Green said.
At Kings Plaza in Brooklyn, for example, Macerich tenants
include A|X Armani Exchange and Michael Kors, as well as Chipotle and Panera
Bread. In Yonkers, its tenants include Gap, Applebee's, Steve Madden, and Zara.
New Gallery stores would have to offer "aspirational
purchase if you're middle income, or something you buy frequently if you're an
affluent shopper," Green said, noting that the mall "is incredibly
well-positioned between the Convention Center traffic, tourists from
Independence Mall and the Liberty Bell, the affluent Washington Square area,
and Jefferson."
"It's a melting pot, and you have to have the right mix
of tenants," he said.
Rents are another ingredient.
Uniqlo, for instance, has said it will watch sales at its
16th and Walnut Streets store, due to open in the fall. Depending on
performance there, Uniqlo may open another east of Broad Street, downtown
brokers said.
Current rents at the Gallery vary, brokers said, in part
because the stores are so different in size. Rents range now from $30 to $70
per square foot.
Other major retail developments are planned for the blocks
east of City Hall near the Gallery, many of them part of mixed-use projects.
Along Chestnut Street between 11th and 12th, where his
client Brickstone Cos. is renovating for August 2015 completion 300,000 square
feet of retail and restaurant space, Larry Steinberg, senior vice president of
retail services at CBRE in Center City, said rents per square foot currently
are $40 to $50.
That compares to $60 to $70 per square foot west of Broad
Street on Chestnut, and $130 to $200 per square foot west of Broad on Walnut
Street, said Steinberg. Negotiations with tenants for Brickstone's project are
underway, he said.
Paige Jaffe, retail broker at McDevitt Co. in Philadelphia,
said she has seen healthy tenant interest in client National Real Estate
Advisors' East Market project. The residential/retail/ hotel complex along
Market, Ludlow and Chestnut Streets between 11th and 12th is set for completion
in 2016. She declined to disclose prospective rental rates for retailers.
"If the [Gallery] developers get the right names to
move in," Steinberg said, "it could be very exciting."
Source: Philly.com
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