ICSC 2019: Trends, predictions, and takeaways from the PA/NJ/DE Conference from first-time attendees

Three members of the Metro Commercial Real Estate sales training team attended their first industry event – the ICSC PA/NJ/DE Conference in Philadelphia earlier this month.

Patrick Duggan, Shane Hart, and Maddie Whitehead, all Sales Associates of Brokerage Services, brought back a number of key takeaways on the state of the Philadelphia retail market, from the opening of the new Fashion District on Market Street to the impact of opportunity zones, and predictions for where the market is headed in 2020.

Check out the takeaways below for what’s new and what’s important in the Philadelphia retail market.

What are your top takeaways from PA/NJ/DE ICSC?

Patrick: Niche stores are taking over, with 743 local independent retailers in the Philadelphia market, compared to 243 national retailers. Local fitness centers, grab-and-go food stores, and others are dominating the market right now.

At the same time, a lot of national retailers are moving out of large malls in the area to Center City, creating a retail hub as the Philadelphia job market remains strong and more people choose to live and work in the city.

Shane: Downtown Philadelphia’s residential population increase and added purchasing power has attracted more than 77 national retailers in the last five years. I expect that growth to continue both for local and national tenants as migration into the city continues to grow.  The success of developments such as the recently opened Fashion District will be a barometer on the state of the retail industry downtown Philadelphia.

Maddie: First, landlords need to be open to rethinking their tenant mix in properties going forward. As many traditional retail stores close and bankruptcies continue, they’ll need to look to alternative tenants and uses to maintain their cash flow.

I’ll also be interested to see the impact of the Fashion District, as well as the East Market development’s openings, on where tenants want to be in Philadelphia. As rents on Walnut Street continue to increase, pay attention to where retailers choose to open.

Finally, with the continued progression of pro-cannabis regulations, landlords will need to understand how cannabis uses can fit into their properties as well as how existing tenants’ exclusions could impact them.

What are some of the major themes that dominated the convention floor or breakout sessions during the conference?

Maddie: Conversations around the bankruptcies of major retailers and how those bankruptcies will impact the retail landscape were dominating the convention floor. Additionally, questions about how the CBD and cannabis industry will fare in the region were prevalent, with many wondering how landlords will react when CBD and cannabis businesses look to lease space in their shopping centers.

Patrick: Right now there’s an influx of food and beverage tenants leasing space in residential and office buildings, which provides foodservice concepts an opportunity to deliver a variety of dining options to the daytime population in a convenient, well-trafficked location.

Shane: At the end of 2018, across Center City, there were 61 major projects under development, representing 21.5 million square feet between Fairmount and Washington Avenues, which is approximately $7.1 billion in new investment downtown. Philadelphia isn’t growing as fast as some cities, but analysts predict steady growth to continue into 2020.

How will opportunity zones impact the retail industry — from developers to tenants?

Shane: One of the bigger success stories of the opportunity zone legislation has been Brewerytown.  Most opportunity zone development will be focused on residential assets in the interim with small retail space opportunities in the newer developments. Two examples of these developments are a 108-unit apartment with ground retail at 2601 Poplar Street and the F.A Poth Brewing Company building at 31st and Jefferson streets, which is being redeveloped into apartments and lower-level commercial space. Once regulatory questions are resolved, larger projects with more retail opportunities will begin to pop up.

Maddie: There continues to be confusion around the rules and processes for opportunity zones across the country, so it’s important that developers consult with experts in the area to maximize the benefits of the legislation. It’s still early on for opportunity zones, so there is some uncertainty about how they will impact the retail industry specifically.

Patrick: About 10-12 new construction projects are currently underway, mostly residential with retail on the ground floor, which can make a big difference in giving the neighborhood quality retail and restaurant options.

What are your retail predictions for 2020 based on what you learned at the conference?

Patrick: I predict that there will be a lot of growth with national retailers coming into Philadelphia, the Fashion District opening, and independent retailers continuing to find new space and do well in the market. That’s going to solidify Philadelphia as a huge retail hub.

Shane: The A centers, or best-positioned new developments, will remain strong while traditional B and C retail locations seeing higher than normal vacancies are going to seek alternative use tenants such as entertainment, fitness, medical or healthcare. Alternative use tenants don’t necessarily need to be in the best center in the market and can help drive traffic that could potentially revitalize a shopping center. As fitness and entertainment concepts continue to fill vacant big boxes, clicks-to-bricks will fill smaller availabilities as they open their first brick-and-mortar locations. Additionally, CBD and cannabis concepts will continue to expand nationally as states pass more favorable laws.

Maddie: My predictions for 2020 are the following: We will see landlords make changes to their properties to accommodate the continued growth in mixed-use developments where people can live, work, and play. We will also see continued growth in alternative use tenants in malls and shopping centers to keep them relevant and thriving. With medical, educational, and housing uses on the rise, it will be interesting to see how landlords choose to merchandise or reposition their properties.

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