When Hannibal Lecter Meets Retail
We heard talk of chains and cannibalization Wednesday morning at the Rittenhouse, but it was no gore fest. It was the all-star panelists at our Third Annual Retail Summit talking about Center City. (Phew, it was too early in the morning for fava beans and chianti, if you ask us.)
It's the story of a fast-growing population where demand outpaces supply, says Metro Commercial prez Steve Gartner, who was on our first of two panels (more coverage coming next week). That doesn't mean the retail scene is teeming with super luxury like in KOP, although Steve thinks Center City should learn to embrace its own special work/live/play vibrancy. Restaurants are an important part of the mix, with both chef-driven concepts and national chains... and that's not a bad thing, he adds: Chains are a sign that outside capital is taking an interest (and an opportunity for us to get bottomless salad and bread sticks). Indeed, Steve and others are getting calls from all over the country about the Philly market, including from REITs.
Our moderator, McGladrey partner Beryl Simonson, asked the panel about rents, tenant mobility, and challenges to redeveloping Market East. While rents have been stagnant for five years, and construction costs have continued to rise, Goldenberg EVP Jeremy Fogel says it’s a challenge not limited to Center City. And Goldenberg is in the construction game, not just in acquisitions, with lenders again looking at ground-up projects. Steve, meanwhile, emphasizes that the city’s expensive construction and low rents remain an impediment to development, especially for big-box retailers. (But great if you sell hammers!)
While Goldenberg has a retail presence on the riverfront, it’s Market East that Jeremy refers to as “beachfront” real estate (minus the pesky seagulls). He says that street-level retail will be an important component of the group’s Market 8 proposal if it wins the much-coveted casino license. Jeremy sees a push to open new stores, but fears of cannibalizing others has led to a view of supplementing instead of overpowering. And now the competition for retailers is beyond local, as shown by Target’s decision to scale back the number of its new stores nationwide.
You don’t have to be quite so stingy trying to find a Starbucks, and you can thank Mid-Atlantic store development manager Greg Rees for that. In the 20 years since entering Philly, he says its locations have held up pretty well, and now it's following the population growth into outlying CC neighborhoods like Grad Hospital and the Penn Hospital area of University City. Greg cautions that selling locations to retail committees can be tough; people who don’t know Philly like a local need assurance that growth is a constant. That said, he thinks the Navy Yard’s fast-growing workforce is making it an attractive candidate for future Starbucks entry.
A real plus is that the city’s population has stopped shrinking, says Cedar Realty Trust VP Nancy Mozzachio. The flight to density has Philly repositioning to capture retailers moving away from low-density markets. TJ Maxx has been a successful tenant for Cedar, and discount stores are more attracted to supermarket centers, while restaurants keep creeping closer to 50% of retail share—“you can’t dine over the Internet” is a common sentiment echoed among panelists. (We tried once, and now we don't have a shift key.) On the other hand, the traditional supermarket is becoming harder to find: A store like BJ’s Wholesale could be found anchoring a shopping center.
Special thanks to all our sponsors, including Control Point Associates, whose services are on the cutting edge of land surveying and consulting (snapped: Rich Butkus, David Hines, Raechel Klein, Brittany Pryor, and Paul Jurkowski). With an office in Chalfont and HQ in NJ, Rich says the company sees adaptive reuse as a big trend in 2014 and quicker turnarounds on commercial development.
Dave McCaffrey was on hand to showcase the expertise of DDP Roofing Services. Headquartered in Glen Mills, DDP works on projects up and down the East Coast.
While retail projects and program management remain at their core, Bohler Engineering (snapped: its George Cressman, Jennifer Gradel and Rob Irons) has seen growth and expansion across the board, and its outlook for 2014 is promising, they tell us, as more projects come to life.