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An Evolving Retail Mix

Regional Overview

  • The vacancy rate decreased from 7.6 percent at mid-year to 7.2 percent at year end.
  • Numerous large vacancies were backfilled — an encouraging sign since additional large retailer vacancies are upcoming in 2017.
  • Asking rents continued to increase for upper-tier and renovated centers, but remained flat for older centers.
  • Investment sales activity was behind the first half of 2016 in terms of square footage, but ahead in dollar volume.
  • Q4 2016 Retail Market IndicatorsDespite challenges facing brick and mortar retail, regional shopping center vacancy continued to trend downward during the last two quarters of 2016. New and expanding grocery chains, off-price apparel, home furnishing stores, and fitness chains took down multiple vacant anchor spaces. The retail mix within centers has been evolving to include a greater mix of service, medical, fitness, and entertainment tenants. Supermarkets are increasingly adding in-store dining options to attract customers. This is particularly noticeable in Pennsylvania due to relaxed beer and wine sale restrictions and the auction of expired liquor licenses to supermarkets.

    Q4 2016 Retail Vacancy and Rental RatesAs department stores attempt to stem losses, it is likely that the region will be impacted by large store closures in 2017, including four Macy’s and additional Sears and Kmart locations.

    Competition from new construction, e-commerce, and an influx of new ownership has resulted in a wave of redevelopment activity. This includes signage and facade upgrades, reconfiguring ingress-egress routes for better access, and full guts or teardowns of existing buildings. Ground-up and redevelopment projects more frequently have a residential-retail mix such as Madison Farms in the Lehigh Valley, the Promenade at Granite Run in Delaware County, the Shoppes and Residences at Renaissance Square in Burlington County, and yet-to-be-approved plans for Bala Cynwyd Shopping Center and Stratford Plaza.

    Submarket Reviews

    Philadelphia County

    The vacancy rate in Philadelphia County decreased from 8.8 to 7.2 percent at year-end. Supermarket activity was a major reason for the vacancy drop. ShopRite moved to a vacant Pathmark location in South Philadelphia and ShopRite’s former location will be backfilled by Acme. Fresh Grocer will take over the vacant Pathmark at Grays Ferry Shopping Center. Plaza Allegheny, a Save A Lot-anchored center, is underway in the under-served Fairhill section of the City.

    Full renovations are underway at the Fashion Outlets of Philadelphia and interest in the project is reported to be strong.

    Suburban Pennsylvania

    Vacancy decreased overall from 7.6 to 6.2 percent in Q4. Only Chester County had an uptick in vacancy. The new phase of King of Prussia Town Center, the King of Prussia Mall connector, the Shoppes and Brookhaven, a portion of Ellis Preserve Town Square, and the Shops at Wynnewood opened. Full construction was underway at Centre Square Commons in Blue Bell.

    Major renovations were advancing at the Promenade at Granite Run, Exton Square Mall, Spring House Town Center and Suburban Square in Ardmore. Hillcrest Shopping Center in Lansdale and The Coventry Mall have rehabs in the approval stages.

    Southern New Jersey

    The overall vacancy rate in the three counties decreased from 11.0 to 10.6 percent at year-end. Burlington County had an increase in vacancy, but Camden and Gloucester had decreases. Both Camden and Burlington counties are likely to have increases in 2017 as a result of Macy’s closing stores in Moorestown and Voorhees.

    Construction has been on the upswing, particularly in infill locations. RD Management began renovations on the existing center in Marlton that will be part of the larger Shoppes and Residences at Renaissance Square development. Wishing Well Plaza is expanding to accommodate Burlington Stores, and PREIT plans to expand the Cherry Hill Mall for an unidentified tenant. There will likely be more retail sites torn down to make way for new commercial developments, but not solely retail.

    New Castle County, DE

    New Castle County’s vacancy decreased from 7.4 to 7.2 percent, but the lifestyle center vacancy rate increased because of new construction. New retailers have opened in the expanding Christiana Fashion Outlets. Kimco has begun infrastructure improvements for the Promenade at Christiana. This 400,000-square-foot center is scheduled for completion in 2018. Pettinaro plans a mixed-use development for the balance of the Barley Mill site that it acquired in October.

    Lehigh Valley, PA

    The Lehigh Valley vacancy rate dropped from 5.9 percent at mid-year to 5.5 percent. The completion of the 560,000-square-foot, Hamilton Crossings, which included new Valley retailers such as a Costco, boosted occupancy.

    New development and redevelopment activity remains strong. Walmart will be building a 158,000-square-foot supercenter in Bethlehem. Construction on the new Movie Tavern in Trexlertown will be commencing. Renovations are underway at Westgate Plaza, and pad site development is planned for the front of the Lehigh Valley Mall. Pad site development is prolific in the Valley, with multiple drug store, c-store, fast casual and strip retail projects under construction.

    Central Pennsylvania

    The overall vacancy rate in the Central PA counties increased from 6.8 to 6.9 percent. Dauphin and Berks had increases due to the closing of the Kmart in Reading and OfficeMax and Giant stores in Colonial Commons in Harrisburg.

    Construction was underway at the Shoppes at Belmont in Lancaster. The first phase of the mixed-used project will include a Whole Foods, with a Target, Dick’s Sporting Goods, Nordstrom Rack and Ulta Beauty by completion in 2018.

    Vacancy will increase during the 1st half of 2017 due to the announced closing of the Sears in Capital City Mall and Kmart stores in Cumberland and Lancaster County.

    Click here to download the full report as a PDF.

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