Shopping Center Business

MAY 2016

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HIGH STREETS 254 • SHOPPING CENTER BUSINESS • May 2016 L ike in New York City, the cities of Boston and Philadelphia are experiencing a retail real estate boom. Unlike in New York City, which counts on a large volume of national and inter- national tourists to shop on its high streets, Boston and Philly rely most heavily upon the foot traffic of local residents. That's not to say tourists aren't contributing to the retail per- formance in these cities. "Boston has over 28 million tourists per year, ranking fourth behind New York City, Chicago and Los Angeles, respective- ly," says Gene Spiegelman, vice chairman and head of retail services for Cushman & Wakefield in North America. "It's a high gateway city with approximately 4.5 million international tourists per year. In Philly, tourism is more domestic and it's a much smaller economy." But, it's the growing numbers of university students, young professionals and empty nesters living and working in these dynamic urban centers that is driving unprecedented demand — and, in some cases, unprecedented rents — on Boston and Philly's high streets. BOSTON "Boston has undergone an unbelievable boom with growth in our university, healthcare and tech sectors," says Corey Bi- alow, chief executive officer of Needham, Massachusetts-based Bialow Real Estate. "All of these things are driving residential and office growth back to the city, and naturally the disposable income that comes from that is driving retail sales. I'm hearing that overall, most retailers are doing very well on the high streets in Boston." But, Bialow notes, there has been a shift on the city's main high streets of Newbury Street and Boylston Street. Though the end of last year saw new additions, such as Woolrich John Rich & Bros. taking space at 299 Newbury Street, rising rents have some retailers and restaurants looking elsewhere in the city. "Rents have gone up significantly, forcing some independent boutiques, local restaurants and smaller mom-and-pop shops into other areas," he says. "It's mostly nationals on Newbury now." As of fourth quarter 2015, Newbury Street was seeing asking rents average around $150 per square foot, according to Cush- man & Wakefield. Boylston Street is seeing similar trends. "On Boylston, I've seen landlords asking as high as $250 per square foot in the same space that was half that price five years ago," Bialow says. According to Bialow, the emerging Seaport District — which will be home to Berkshire Group, WS Development and Boston Global Investors' 1.1 million-square-foot One Seaport Square mixed-use property, opening in 2017 — is one area that's at- tracting retail and restaurant attention. "Since the Seaport has grown tremendously, it has taken away some of the nighttime and weekend restaurant activity from the traditional high streets," Bialow says. The revitalized Fenway neighborhood is another emerging shopping district, with Target choosing to open its first CityTar- get concept on the East Coast there last year. "That's changed the dynamic of the neighborhood and turned it into a shopping destination for some residents," Bialow says. "It's exciting overall what's going on for Boston high street re- tail, but rents are a concern," Bialow adds. "Boston is never go- ing to be the international hub like Manhattan where retailers need to make a brand and will overpay on high street to build that brand. Retailers come to Boston to be profitable. And at a certain point, these occupancy costs will make it difficult." PHILADELPHIA On Philly's Walnut Street, despite the rising rents, occupancy is high, reports Steve Gartner, managing director in CBRE's local office. "Walnut Street is by and large fully leased, with a few exceptions," Gartner says. "Our high street corners, which fetch north of $200 per square foot, are often leased by banks and wireless users. Soft goods retailers are slightly below, ranging from $135 to $170 per square foot." According to Gartner, Philly's high street soft goods tenants are mostly youthful, as- pirational national retail brands, such as Madewell and Intermix. "Super luxury has never really been on our high streets," he says. "We're geared toward the younger consumer that shops, lives and works in Center City." And, with a significant university student base and young professionals working in the city's growing science and tech industry, there is no shortage of that target consumer walking Philly's high streets. "Philly is benefitting from Millennials want- ing to live here," Gartner says. "If you're working in Center City, most likely, you live and shop in Center City too." In terms of new trends, Gartner notes the influx of gourmet markets and food concepts to high streets, as well as boutique fitness tenants, like Orange Theory, that cater to millennial residents. "We're seeing a big emphasis on healthy eating and healthy lifestyle in our new tenants," Gartner says. Outside the main shopping streets of Walnut Street and neighboring Chestnut Street in Center City, Gartner and Spiegelman note the Fashion Outlets of Philadelphia (former- ly Gallery) at Market East as a project to watch. Connected to Reading Terminal Market, the Pennsylvania Convention Cen- ter and three transit hubs on Market Street, the Fashion Outlets will feature 730,000 square feet of designer outlet brands and dining across three city blocks. Century 21 Department Store anchors the project, which is a joint venture partnership with Macerich and PREIT. "I think for the first time in Philly we might see the geography grow," Gartner says. "East of Broad Street is starting to pop with restaurants, and that will continue as the Market East project comes online. I think we will see retail grow beyond our tradi- tional high street." — Lindsey Marcec Resident-Driven Retail Urban population growth is driving demand on Boston and Philadelphia's high streets. Gartner

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