Stronger retail activity visible across the region

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1 Greater Philadelphia Retail, Q Stronger retail activity visible across the region Retail Sales (Phila. MSA) 0.4% Employment (Phila. MSA) 8,054 new jobs Personal Income (Phila. MSA) 1.1% Consumer Confidence Index 90.9 *Arrows indicate change from previous quarter. HIGHLIGHTS Center City remains a hotbed of activity in the region, attracting retailers as never before. Among the higher profile tenants opening this quarter were Century 21 (The Gallery), Nordstrom Rack (1700 Chestnut St.) and Uniqlo (1608 Chestnut St.). The Pennsylvania, New Jersey, and Delaware suburbs have remained generally resilient. The big story in these markets is construction. Projects range from new shopping centers to redeveloping malls. Sales transactions of retail properties remain very strong. Cap rates are declining, and investors are increasingly searching secondary and tertiary trade areas in the region for value. Major Q transactions included the One & Olney Shopping Center in Philadelphia ($52.5 million) and the Village at Cambridge Crossing in Mt. Laurel, NJ ($41.7 million). Positive activity abounds throughout the Philadelphia region s retail market. The scene contrasts sharply to 2010, when our statistics show retail vacancies peaked, and the region was shrugging off the recession. Supporting the vibrant activity are a host of strong demand drivers. Record-low interest rates and recovering home values continue to support consumption, but strong job creation in the region this year has been especially conducive. Add to this the decline of nearly a dollar in the average price for a gallon of unleaded gasoline over the past six months, and we have the ingredients for a generous holiday shopping season to continue. Clearly, gas prices and interest rates may rise in 2015, but improving economic and job growth should support strengthening retail vibrancy. Q CBRE Research 2015, CBRE, Inc. 1

2 Figure 1: Trade Area Statistics (Shopping Centers above 30,000 sq. ft. (excludes enclosed malls)) Trade Area Inventory (SF) Available (SF) Availability Rate (%) Average Asking Lease Rate (NNN, $/ SF/Yr) 2014 Estimated Population Forecast Population Growth (Avg. Annual Rate) 2014 Estimated Average Household Income 2014 Percentage of Households With Income Over $250K East Norriton/Plymouth Meeting 3,097, , % $ , % $94, % Exton/Downingtown 3,332, , % $ , % $110, % Jenkintown/Willow Grove 2,528,831 73, % $ , % $98, % King of Prussia 1,817,262 89, % $ , % $107, % Main Line 2,032,657 52, % $ , % $86, % Montgomeryville 2,932, , % $ , % $99, % Oxford Valley 2,900, , % $ , % $87, % Springfield/Marple 2,836,722 93, % $ , % $94, % Pennsylvania Trade Area Totals/Averages 21,728,724 1,286, % $ , % $94, % Cherry Hill 4,235, , % $ , % $81, % Deptford 2,611, , % $ , % $74, % Maple Shade/Mt Laurel 2,655, , % $ , % $109, % Marlton 2,336, , % $ , % $111, % Princeton/South Brunswick New Jersey Trade Area Totals/Averages 1,040,812 67, % $ , % $141, % 12,879,292 1,370, % $ , % $95, % Christiana 3,370,310 54, % $ , % $69, % Concord Pk 2,457,823 22, % $ , % $112, % Delaware Trade Area Totals/Averages 5,828,133 76, % $ , % $88, % Source: CBRE Research Q CBRE Research 2015, CBRE, Inc. 2

3 REGIONAL HIGHLIGHTS MONTGOMERYVILLE, PA RE-DEVELOPMENTS CHANGING RETAIL LANDSCAPE KING OF PRUSSIA, PA A FRUITFUL YEAR AND MORE TO COME The largest shopping mall in the United States is growing larger. With the luxurious new expansion of 140,000 square feet connecting the Plaza and the Court, the King of Prussia Mall is going to add 50 more retailers and restaurants to its upscale corridor under one roof in October The construction began in November following the grand opening of Dick s Sporting Goods in November, which replaced Sears at its 75,000 sq. ft. space on the upper level of the Plaza. Currently, the King of Prussia Mall employs more than 7,000 people with over 400 stores. Adjacent to the King of Prussia Mall, as well as the new 130,000 sq. ft. Wegmans, is a 250,000 sq. ft. retail project waiting for construction to kick-start in Spring 2015 and expected to be delivered around Summer The King of Prussia Town Center, previously known as the Village at Valley Forge, is a significant retail component of the mixed-use development project of the 125-acre conveniently located land site at the crossroads of four major highways Routes 202 and 422, the Schuylkill Expressway, and the Pennsylvania Turnpike. According to the developer JBG Rosenfeld Retail, King of Prussia Town Center will be a distinguished lifestyle center that offers a pedestrian-friendly, healthy and fashionable shopping and dining experience. Surrounding the retail destination, there will be 3,000 residential units, 500 hotel rooms, multiple office buildings and a brand-new Children s Hospital of Philadelphia, creating a featured live, work and play community. Moreover, across the street from the Court at King of Prussia off Route 202, Courtside Square has recently undergone a significant renovation to improve the look of the commercial complex. Five Points Plaza, the community power center at the intersection of Route 309 and 202, is going to enter a new phase of development, anchored by Lowe s and the forthcoming BJ s Wholesale Club. According to the landlord RD Management, an existing building of 79,200 sq. ft. will be redeveloped and expanded to around 123,710 sq. ft., housing a potential junior anchor of 35,967 sq. ft. and BJ s Wholesale Club of 87,743 sq. ft. Meanwhile, BJ s Wholesale Club is going through the land development process to build its third club in Montgomery County, adding to existing locations in Oaks and Plymouth Meeting. The decision to take the former American Signature Furniture site could be BJ s further step to compete with Costco in the Greater Philadelphia Region and a result of increased traffic counts after Wegmans joined the Montgomery Mall on November , which has successfully attracted more retailers and restaurants to play in town. Springhouse Village Shopping Center, positioned at the intersection of Bethlehem and Sumneytown pikes in Lower Gwynedd, is looking forward to Whole Foods Market. Whole Foods announced its relocation plan from the current 18,000 sq. ft. store in North Wales to Springhouse Village on May 6, 2014 and the target opening date is late Based on Whole Foods news release, the store will be approximately 45,000 sq. ft. with a walking path, green space, increased parking and new offerings. It was a significant move for Stoltz Real Estate Partners, the owner of the shopping center, to lease the Clemens Markets space which had been vacant for several years. Stoltz recently submitted preliminary development proposals for the site construction. The Lower Gwynedd Township officials had a first meeting on December 16, 2014 and will meet again on January 13, 2015 for further discussion. On the other hand, the departure of Q CBRE Research 2015, CBRE, Inc. 3

4 (cont. from previous page) Whole Foods Market will create new vacancies at the Gwynedd Crossing Shopping Center in North Wales off Routes 309 and 63, across from The Shoppes at English Village Lifestyle Center. MAPLE SHADE/MT LAUREL, NJ SALE OF CAMBRIDGE CROSSING On November 14, 2014, Paramount Realty Services and Cornerstone Real Estate Advisers completed the sale of Village at Cambridge Crossing for $41.7 million, or about $326 per sq. ft. Cambridge Crossing, anchored by LA Fitness (43,000 sq. ft.), is a 128,000 sq. ft. community shopping center strategically located at the intersection of Route 38 and Interstate 295 in Southern New Jersey. Only one mile away from the 730,000 sq. ft. Centerton Square power center anchored by Wegmans and Target, it has been one of the local shopping destinations and was fully leased at the time of sale. The buyer Cornerstone, as one of the largest global real estate managers, also owns Baederwood Shopping Center, an 117,000-square-foot strip center anchored by Whole Foods in Jenkintown, PA. Figure 2: Philadelphia MSA Retail Property Sales Transactions 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% $360 $320 $280 $240 $200 $160 $120 $80 $40 $0 Millions Sales Transactions (R Scale) Cap Rates (L Scale) Source: Real Capital Analytics, Q (4-qtr. averages) CAPITAL MARKETS Investment demand for the Philadelphia region s retail assets has surged to pre-recession levels. Through the end of October, over $1 billion of retail properties were purchased in This is greater than the amount purchased in 2012 and 2013 combined ($882 million). The average retail cap rate declined rapidly in 2014, reaching an average of 6.1% in Q3 2014, versus 7.4% a year earlier. Demand for retail properties continues to be strong, and with improving fundamentals, investors should continue to chase assets with vigor in However, with prices rising and less properties available for sale, investors have been reaching farther out to secondary and tertiary submarkets in the region for potential buys. Q CBRE Research 2015, CBRE, Inc. 4

5 RETAIL SALES Mirroring the nation s stronger consumption activity, Philadelphia s metropolitan retail sales continue to trend higher. Through the end of Q3 2014, the region s retail sales were estimated to have grown 3.0% on a year-over-year basis. Furthermore, by the end of 2015, Philadelphia metropolitan retail sales are forecast to grow 5.0%, the fastest pace since 2011, as shown in Figure 3. The strongly diversified regional economy, which continues to grow jobs, underpins the improving consumer activity. However, the rebounding local real estate market, record low interest rates, and substantial savings from lower gasoline prices may help retail sales statistics post to the upside. SUPPLY After years of little construction activity, new projects are popping up across the region. Our statistics track major projects that will deliver net, new space, and include notable developments such as the King of Prussia Town Center, Christiana Fashion Center, and Uptown Worthington, among others. Moreover, there is significant activity occurring in redevelopment. The King of Prussia, Granite Run, and Exton Square malls, in addition to Center City s The Gallery, are all at some stage of redevelopment. The surge in e-commerce sales has helped provide incentive for many of these malls to reinvent themselves for an omni-channel world. RENTS Our shopping center data (centers over 30,000 sq. ft.) indicates the highest average asking rents are offered in the Main Line trade area. The high rents along the Main Line, unsurprising due to the attractive demographics and densely populated nature of the trade area, are also attributable to the dearth of large available space. The King of Prussia trade area, even excluding the Mall, offers much higher than average rents due to its highly attractive location. On the other end of the scale, Deptford, NJ offers the lowest average asking rents, as well as the nearly lowest average household incomes among trade areas. Figure 3: Philadelphia MSA Retail Sales Billions Sq. ft. $40 $35 $30 $25 $20 $15 $10 $5 $0 $130 $120 $110 $100 $90 $80 $70 Source: Moody s Analytics Figure 4: Retail Completions 800, , , , , , , ,000 0 Source: CBRE Research Figure 5: Average Asking Lease Rates (NNN, $/Sq. ft./year) Source: CBRE Research Forecast Q CBRE Research 2015, CBRE, Inc. 5

6 Figure 6: Metropolitan Philadelphia Primary Retail Trade Areas CONTACTS LOCAL OFFICES Ian Anderson Director of Research and Analysis Lauren Koshgarian Senior Research Analyst Wei Luo Researcher Center City Philadelphia Two Liberty Place Cira Center Wayne, PA Conshohocken, PA Allentown, PA Harrisburg, PA Mt. Laurel, NJ Wilmington, DE Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.