Q2 2022 Retail Report: Philadelphia
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
The Philadelphia retail space market saw gains in retail rents in the second quarter of 2022, with several notable players gaining prime spots on Walnut Street at the southern end of Rittenhouse Square, near Suburban Station, and in the Northwest region between the University of Pennsylvania and Drexel University.
Retail rents saw notable, yet limited growth due to pressures from inflation and stagnation in national GDP levels.
As retail spaces become available in Philadelphia’s downtown core, retailers have increased competition, causing market conditions to slowly rise over time.
Retail Sector Performance in Philadelphia in Q2 2022
In Q2 2022, the retail sector in Philadelphia performed well, with sales rising by 2.5%. This was driven by strong performance in the clothing and accessories, food and beverage, and health and beauty sectors.
In terms of retail space rents, they increased by about 2.4% in Q2 2022 from Q1 2022, driven by demand from retailers looking to expand their operations in Philadelphia yet softened by inflation and supply chain disruptions.
The outlook for the remainder of the year is positive, with sales expected to grow by 2.8% in Q3 and 3.1% in Q4.
However, inflation is expected to have a negative impact on retail sector performance in 2022, with sales growth forecast to slow to 2.4%.
The Pacing of Retail Space Rents in Philadelphia
In the second quarter of 2022, retail space rents in Philadelphia increased in a continued rebound from pandemic-era rates.
The average retail space rent in Philadelphia in Q2 2022 was about $26 per square foot, about a 2.4% increase from the previous quarter.
Retail space rents in Philadelphia remain among the highest in the country.
Inflation, however, has been a major driver of increased costs for retailers, resulting in higher prices for goods and services.
How is inflation affecting Philadelphia’s retail performance?
Inflation has been on the rise in Philadelphia, and retail investors have felt its effects.
The average retail space rent in Center City Philadelphia, we estimate, now sits at about $32.00 per square foot.
This increase in costs is due to the rising cost of goods and services, which is affecting businesses across the city.
With the holiday shopping season approaching, we expect retail sales growth in Philadelphia to continue, yet at a limited pace due to rising inflation as consumers seek more budget-friendly shopping options.
Emerging Trends in Philly’s Retail Sector
Now, in Q3 2022, we see a continued trend of businesses moving out of Center City and into the suburbs.
This is due in part to the higher rents in Center City, as well as the increased foot traffic in suburban areas.
New Businesses Seek Philly’s Retail Market
We also saw an increase in the number of new businesses opening up in Philadelphia, which is a positive sign for the future of the city’s retail sector.
However, inflation has begun to affect Philadelphia’s retail sector, with prices for goods and services rising at a faster rate than in other parts of the country.
This is something to keep an eye on in the coming quarters.
Overall, we expect Philadelphia’s retail sector to continue to grow in the next few years, albeit at a slower pace than in recent years.
Notable Retail Space Acquisitions in Philadelphia
Philadelphia’s retail sector has seen its fair share of acquisitions and announcements:
- WeWork has continued its streak of retail acquisitions, purchasing the former Lord & Taylor building on Walnut Street.
- Amazon has also been busy in Philadelphia, acquiring two former Toys R’ Us locations.
- Walmart is looking to enter the Philadelphia market, and has been in talks to purchase a former Kmart location.
- Target is also rumored to be interested in opening a store in Philadelphia.
Ikea has also announced plans to open a store in South Philadelphia.
Occupancy Rates in Philadelphia’s Retail Sector
In the second quarter of 2022, Philadelphia’s retail sector continued to rebound from the COVID-19 pandemic, with occupancy rates rising to 90.4%.
This is up from 86.1% in Q1 and marks the highest level of occupancy since Q3 2019.
Despite these positive trends, inflation is starting to have an impact on Philadelphia’s retail sector performance.
In Q2, CPI-adjusted retail sales rose 2.9%, but this was outpaced by a 4.1% increase in CPI-adjusted retail rents.
Takeaways for Philadelphia Retail Space Investors
With the retail sector in philadelphia expanding while simultaneously battling inflation and supply chain disruptions, investors should keep in mind the following:
- The second quarter of 2022 was a strong one for the retail sector in Philadelphia, with retail space rents rising across the city.
- Inflation is starting to have an impact on the sector, with prices for goods and services rising.
- Despite this, the retail sector is forecast to continue to perform well in the future, with strong demand from both local and national retailers.
- Commercial real estate investors in Philadelphia should continue to see strong returns in the retail sector.
- Inflation will likely have a bigger impact on the sector in the future, so investors should be aware of this when making decisions about their investments.
Do your research, stay diligent, and happy investing.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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