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16C — June 26 - July 16, 2015 — Mid-Year Review — M id A tlantic
Real Estate Journal
Economy
P hiladelphia R etail
Asking Rent Employers in the Phi 12-month period endi tions. During the corr 0.6 percent. The strongest gains w which added 14,200 j 20 percent of total e filled in the constructi Retail spending in th cilitating the hiring of Montgomery, Bucks retail sales rose 0.1 per Outlook: Employers a 1.4 percent gain. Construction In the year ending in nudging retail stock u square feet was deliver A large-scale expansio 250,000 square feet of addition will briefly m The biggest project sc foot Gloucester Premi already created 300 c 90-store outlet mall is Outlook: This year b square feet of retail sp year, a mere 370,000 s -6% -3% 0% 13 12 11 Multi-Tenant Sal 1 0 135 $170 $205 $240 13 12 11 $200 225 $250 $275 $300 3 Single-Tenant Sal e T - 3% 6% 00 3 ngle-Tenant Sal ni e A en T -6% 3 i Te an Sal 240 200 225 75 300 3 S n le-Te a t a ite The strongest gains w which added 14,200 j 20 percent of total e filled in the constructi Retail spending in the cilitating the hiring of Montgomery, Bucks a retail sales rose 0.1 per Outlook: Employers a a 1.4 percent gain. Construction ■ In the y ar ending in nudging retail stock up square feet was deliver ■ A large-scale expansio 250,000 square feet of addition will briefly m ■ The biggest project sch foot Gloucester Premi already created 300 co 90-store outlet mall is ■ Outlook: This year b square feet of retail sp year, a mere 370,000 s Vacancy ■ Average vacancy held March. During the sa point decline. Shopping center vacan strip centers, was 9.3 p year earlier. Vacancy at At malls, however, the ■ Average vacancy in So above the previous lo improved the rate 30 b Outlook: Net absorpti down average vacancy recorded last year. -3% 6% 3% 6% 13 12 11 Multi-Tenant Sal Single-Tenant Sal $100 205 $200 2 5 $135 240 $225 $170 $250 $205 $200 $ 75 $240 $225 300 1 12 12 11 11 $200 $275 -6% $225 $300 -3% $250 0% $275 -6% $300 -3% 1 12 11 Single-Tenant Sal Asking Rent Metro Unit Asking Rent 0% 1 12 11 Multi-Tenant Sal $100 2 5 1 0 $135 240 135 $170 1 Shopping center vaca strip centers, was 9.3 year earlier. Vacancy at At malls, however, the 12 11 $250 1 12 11 Single-Tenant Sal Metro Unit 3% 6% 1 Multi-Tenant Sal Average vacancy held March. During the sa point decline. $135 $170 1 Metro Unit Economy ■ ■ ■ ■ ■ ■ ■ ■ Vacancy ■ ■ ■ Average vacancy in So Asking Rent T Employers in the Phi 12-month period endi tions. During the corre 0.6 percent. Metro Unite 3 3 ■ ■ ■ ■ ■
Marcus & Millichap’s retail research market overview Steadily improving operations draw national interest in Philadelphia Employment Trends Metro United States 3% 4% 3% 6% ■
T he Philadelphia econo- my continues to make steady improvements
national tenants. In these best- case scenarios, initial yields can start slightly below the 7% threshold. 2015 Annual Retail Forecast Employment: Employers are on track to add 40,000 workers to payrolls in 2015, a 1.4% gain. Job gains will be strongest in the education and health services sector. Last year 45,400 posi- tions were added. Construction: This year builders are scheduled to place into service 1.3 million s/f of retail space, lifting total inven- tory 0.5%. In the previous year, 370,000 s/f was brought online. Vacancy: Net absorption will approach 2 million s/f in 2015, pulling down average vacancy 30 basis points to 6.3%. A similar decline was recorded last year. Rents: As vacancy tightens this year average retail asking rents will rise 4.0% to $16.71 per square foot, down 3.9% form the pre-recession high. Overall asking rents recorded a 4.7% increase last year. Economy ■ Employers in the Philadelphia metro increased staffing 1.5% in the 12-month period ending in the first quarter with the cre- ation of 40,600 positions. During the corresponding period last year total employment rose a mere 0.6%. ■ The strongest gains were made in the education and health services sector, which added 14,200 jobs over the past year. The sector makes up more than 20% of total employment. Roughly 16,600 positions were collectively filled in the con- struction, and the trade, trans- portation and utilities sectors. ■ Retail spending in the metro rose 3.6% over the past 12 months, facilitating the hiring of 2,700 retail trade jobs, the majority of which were in Mont- gomery, Bucks and Chester counties. Over the same period last year, retail sales rose 0.1%. ■ Outlook: Employers are on track to add 40,000 workers to payrolls in 2015, a 1.4% gain. Construction ■ In the year ending in the first quarter, 360,000 s/f was completed, nudging retail stock up 0.1%. During the same pe- riod last year, 960,000 s/f was delivered. ■ A large-scale expansion is underway at the King of Prussia Mall that will add 250,000 s/f of retail space. Upon completion in the fall of 2016, the addition will
-6% 3% Single-Tenant Sales Trends ■ Transaction velocity of single- tenant properties slowed 15% in the four-quarter period ending in March due to a dearth of for- sale invent ry. The d cline was widespread among the majority of net-leased property types. ■ Storefront locations in down- town Philadelphia averaged $400 psf. However, well-located assets with strong national tenants locked into long-term leases can trad north of $600 psf. Newly built drugstores can exceed $500 psf. ■ Dollar stores that chang d hands during the past year av- eraged in the mid-6 to low-7% range. Meanwhile, drugstores averaged in th low-6 % rang with newly built properties dip- ping into the mid-5% bracket. ■ Outlook: Single-ten nt assets will continue to generate sig- nificant attention from buyers, keeping prices high, especially near downtown Philadelphia. Multi-Tenant Sales Trends ■ Transaction velocity in the metro is determined by the number of listings as improving operations generate higher de- mand for multi-tenant c nters. Total sales volume in the four- quarter period ending in March nearly doubled as more in-line centers were listed. ■ The average price of strip centers declined 10% to $145 per square foot, reflecting the qual- ity of for-s le inventory during the period. Newly constructed properties with strong tenant rosters can fetch prices in excess of $300 psf. ■ Newl built grocery-anchored centers draw significant inves- tor attention, garnering cap rates in the low-5% bracket. Neighborhood centers garnered cap rates in the high-7 to mid- 8% ange. ■ Outlook: A growing number of investors will be willing to take on the risks associated with multi-tenant properties in the coming mon hs as cap rates nd availability of net-lease proper- ties remain low. n 0% 0.6%. ■ In the past y ar, rises in quoted rental rates in many submarkets in Downtown Phila- delphia as well as Bucks and Montgomery counties exceeded 5%. The Market Street East and the Market Street West submar- kets posted the strongest gains. ■ Outlook: Average retail asking rents will rise 4.0 % to $16.71 per square foot in 2015, following a 4.7 % increase last year.
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Employment Trends Metro United States t i
with a full recovery of the jobs lost dur i ng the recession ex- pected later t h i s y e a r . Solid gains i n t h e j o b market are strengthen- ing consumer
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Brenton Baskin, Regional Mgr. Phila. Office
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confidence which, in turn, is helping to increase retail spend- ing throughout the metro. These improving conditions are en- couraging retailer expansions. High-end grocers Whole Foods and Wegmans are expanding in the wealthier suburbs. Mean- while, several other smaller re- tailers including discount stores and quick-serve restaurants are also growing their footprints. In the wake of Bottom Dollar’s exit from the market earlier this year, Aldi purchased all 46 loca- tions in the Philadelphia area and has plans to open 20 of them as Aldi stores. The rest will be liquidated or leased to other ten- ants. In order to accommodate rising retail demand, develop- ers will increase retail comple- tions this year after an abrupt slowdown in 2014. Though most construction projects are build- to-suit developments, builders are becoming more confident and beginning projects before they are fully leased. The rise in construction will have little impact on overall vacancy, enabling the rate to fall within 10 basis points of the previous low. Stiff competition among tenants for available space will foster sizable rent gains in the coming year. Demand for retail properties in the Philadelphia metro is ris- ing as steadily improving opera- tions and higher yields attract increasing investor attention from buyers around the coun- try. Compressed cap rates in the New York and Washington, DC, areas are encouraging not only institutional investors, but also private buyers from outside the region to search for assets in the metro. Nonetheless, for- sale inventory remains limited, resulting in stiff competition among buyers. Well-positioned properties generate multiple offers and spend little time on the market. Many private buy- ers are searching for smaller, well-located strip centers with a strong shadow anchor and
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Retail Completions Employment Trends Metro United States Reta
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Retail Completions Vacancy Rate Trends Metro United States
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briefly make the mall the largest in the country. ■ The biggest project scheduled to come online this year is the 415,000 s/f Gloucester Premium outlets in Gloucester, New Jer- sey. The project has already cre- ated 300 construction jobs and will add 500 retail positions. The 90-store outlet mall is slated to open in August. ■ Outlook: This year build- ers are scheduled to place into service 1.3 million s/f of retail space, lifting total inventory 0.5%. In the previous year, a mere 370,000 s/f was brought online. Vacancy ■ Average vacancy held firm at 6.7% in the four-quarter period ending in March. During the same span the previous year, the rate recorded a 20-basis- point decline. ■ Shopping center vacancy, which encompasses community, neighborhood and strip centers, was 9.3% in the first quarter, down 20 basis points from a year earlier. Vacancy at power cen- ters recorded a similar decline to 6.1%. At malls, however, the rate increased 70 basis points 2% 4% 6% 8% 10% 12 11 2% 4% 6% 8% 10% 12 11 0 0.5 1.0 12 11 6% 8% 10% 0 0.5 1.0 1.5 2.0 12 11 2% 4% 6% 12 11 Metro 2% 4% 8 1 % a c 2 % 1 0 * Forecast
15* ■ Average asking rents in the Philadelphia metro rose 1.6% in the 12-month period ending in the first quarter to $16.11 psf. Overall, rental rates have been slow to recover, remaining more than 7.0% below the previous high. In the corresponding span last year asking rents moved up 3.3%. ■ With high vacancy in South- ern New Jersey, average asking rents have yet to gain traction in the area. Over the past year rents fell 3.5% to $12.30 psf, down nearly 20% from the most recent high set at the end of 2008. During the same period last year asking rents dipped 14 13 15* 14 13 15* 14 13 15* to 5.4%. ■ Average vacancy in Southern New Jersey remains more than 100 basis points above the pre- vious low at 8.6%. Nonetheless rising space demand has im- proved the rate 30 basis points over the past four quarters. ■ Outlook: Net absorption will approach 2 million s/f in 2015, pulling down average vacancy 30 basis points to 6.3%. A simi- lar decline was recorded last year. Rents 14 13 15* 14 13
Vacancy Rate Trends Metro United States Retail Completions R United States
Vac ncy Rate Trends Metro United States
Vaca cy Rate Trends Metro United States
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