PHILADELPHIA-Retailers' interest in the Philadelphia metropolitan area is perking up - and by year's end, shopping center vacancy should dip to less than 8%, according Marcus & Millichap's forecast for the rest of 2013.
“Rents across the metropolitan area will climb during the year,” M&M predicts.
Asking rents are expected to rise 1.5% to $17.80 per square foot in 2013 as demand for space strengthens. Last year, rents declined by 3.2%.
After the “very subdued” recessionary years, household growth has resumed in the region, the company says in its most recent report. As new residential projects are rising in Center City, older shopping centers are being redeveloped – for example, Tastykake's old factory, which is being converted to a grocery-anchored center. In the suburbs, Wal-Mart is busy transforming existing stores into Supercenters.
Construction of new retail space will be limited, M&M's research indicates. About 731,000 square feet of space will come online this year, including 240,000 square feet of shopping center space. Last year, 1.6 million square feet was completed, including 290,000 square feet of shopping centers.
Single-tenant net-leased assets are still the most popular with investors. Walgreens and CVS drugstores with substantial remaining lease terms are trading at cap' rates in the low-6% range, M&M reports. Intense competition for convenience stores, such as locally-based Wawas, has compressed cap rates into the mid- to high-5% range.
Multi-tenant properties are attracting more interest lately, M&M says. A grocery-anchored shopping center in a top retail submarket trades with first-year returns in the low- to mid-6 percent range, the report says. Shopping centers with less highly-rated tenants trade 100 basis points higher.
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