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Finding the Balance

2017 Mid-Year Retail Research & Forecast Report for Eastern Pennsylvania, Southern New Jersey, and Delaware

Regional Overview: Retail Market

  • The vacancy rate increased from 7.2 to 8.2 percent during the first two quarters of 2017 as a wave of store closings hit the region. All center types except for Neighborhood Centers had vacancy increases.
  • Most new construction is in mixed-use residential and retail developments.
  • Asking rents were stable, but tenant improvement allowances were increasing.
  • Investment sales activity was highlighted by a record-high sale price for a suburban center.
2017 Q2 Philadelphia Retail Report Market Indicators

The first six months of 2017 reflected the challenges facing retailers and landlords. Multiple bankruptcies, restructurings and streamlining resulted in over 2.1 million square feet of vacancy, and this was just from the Macy’s, Sears-Kmart, JC Penney, hhgregg and Sam’s Club stores. Radio Shack, Payless and Rue21 were a few of the growing number of retailers filing for bankruptcy and closing a combined 35-plus stores in the region.

Finding the right mix of online versus bricks and mortar locations, and creating an environment and experience that brings shoppers into the stores will be an ongoing battle for retailers.

2017 Q2 Philadelphia Retail Report Asking Rates

Shopping center owners are also striving to find the ideal mix of food and entertainment that will bring additional foot traffic to centers amidst sagging retail sales. The additional anchor vacancies will also present redevelopment and retrofit challenges, particularly since the Macy’s locations are separately-owned. However, there has been interest in the big box vacancies as other retailers are stepping up to backfill prime locations.

2017 Q2 Philadelphia Retail Report VacancyAs more retail chains attempt to stem losses, they are likely to attempt to recast deals and seek rent reductions. Center owners are increasing tenant improvement dollars to attract prime tenants.

New restaurant concepts, particularly healthy casual chains, are proliferating. Boutique fitness centers and larger clubs like Lifetime Fitness are opening more locations. Entertainment and recreation operators are in demand. Medical groups continue to secure retail locations. Discount retailers have remained active.

Investment volume was down from 2016’s levels. The newly constructed retail portion for the King of Prussia Towne Center was purchased at a high-water-mark price for the Philadelphia market.

Kimco Realty acquired interests in the Lincoln Square Development in Philadelphia and Macarthur Towne Center in the Lehigh Valley.

Submarket Reviews

Philadelphia County

The Philadelphia County’s vacancy rate increased from 7.2 to 7.7 percent due to the closing of the JC Penney at Philadelphia Mills and the hhgregg at Whitman Square. However, demand has been strong, and vacancies from 2015 and 2016 have been steadily backfilled.

In addition to the high profile retail redevelopments in Center City, there are additional new developments underway and planned on the bordering neighborhoods, such as the retail component of Lincoln Square and in under-served areas of the city like Plaza Allegheny.

Suburban Pennsylvania

Vacancy spiked from 6.2 to 7.5 percent during the first half of 2017 as four hhgregg, two JC Penney, and two Macy’s closed. Plans are already in the works to redevelop the Macy’s at Plymouth Meeting Mall.

The former Macy’s at Suburban Square in Ardmore is being redeveloped into a Lifetime Fitness. A Frank’s Theatres CineBowl & Grille is being constructed on the formerJC Penney site at the mixed-use Promendade at Granite Run redevelopment. Two new Whole Foods (now owned by Amazon) are rising on the site of a former Kmart at Exton Square Mall and at Springhouse Village Center.

Southern New Jersey

Southern New Jersey had nearly a two-percentage-point increase in vacancy to 12.5 percent as a result of the closing of the Macy’s in Moorestown and Voorhees and the Kmart in Mantua. PREIT plans to buy the Moorestown Mall store from Macy’s and redevelop the building to accommodate different tenants, including a potential food store.

The mixed-use Shoppes and Residences at Renaissance Square development in Marlton has had strong preleasing, signing multiple tenants including Virtua Medical to the 126,367-square-foot retail portion of the center. The Paulsboro Shopping Center redevelopment will be anchored by a Sav-A-Lot supermarket.

New Castle County, DE

New Castle County was one of the few markets that had a vacancy decrease to date in 2017. Vacancy dropped from 7.3 to 7.0 percent, despite the closing of two hhgregg stores. The vacant SuperFresh in Claymont is being redeveloped into a self storage facility.

Lehigh Valley, PA

The Lehigh Valley vacancy rate ticked up slightly from 5.5 to 5.7 percent. With the exception of an hhgregg, the Valley has avoided large store closings to date in 2017.

There was a burst of new restaurant openings including national chains and locally-based establishments opening new locations.

New owners were making upgrades to centers such as Palmer Park Mall, MacArthur Town Center, and the Westgate Mall.

A new Weis Markets will be built as part of the mixed-use Woodmont Valley complex in Lower Macungie.

Central Pennsylvania

The overall vacancy rate in the Central PA counties increased from 6.9 to 7.6 percent. Lebanon, Dauphin and Adams counties had drops in vacancy, but the remaining counties had vacancy increases.

There were deals for some of the large anchors vacated in the last year. Dick’s Sporting Goods leased the Sears store in Capital City Mall, and Hobby Lobby, Toys R Us and TJX store brands absorbed additional vacancies.

Construction was underway at the Shoppes at Belmont in Lancaster. This Whole Foods, Target ant Dick’s-anchored center will be completed in 2018. The retail component of the mixed-use Crossings at Conestoga Creek was also under construction. The center will be anchored by a 120,000-square-foot Wegmans.

More downtown development projects were underway and planned in York, Lebanon, and Hershey.

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Finding the Balance: The Right Mix of Online and Brick and Mortar

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