Retailers are looking beyond Rittenhouse Square, expanding Center City’s shopping district east

The Center City District expects the success of retailers near Rittenhouse Square to continue expanding to the greater downtown, while East Market Street is poised to realize its potential and become a hot new retail area, the group’s annual report concludes.

The group cited multiple positive signs: Greater Center City has become the fastest growing residential section of Philadelphia, attracting 26 percent of all those moving into the city in the last five years, the report said. The city has added 77 national retailers since 2000. More than two million square feet of retail are under construction. Hotel occupancy is up, and Center City is in the midst of reviving its historic department store district.

“The critical mass of large-scale, mixed-use development along Market East will create a continuous shopping and dining experience from Independence Mall to the major convention center hotels adjacent to City Hall,” the report says.

Steven H. Gartner, executive vice president of global retail services at CBRE Inc., says he doesn’t see a retail overdevelopment in Center City, because the current retail matches the qualities that today’s residential population are looking for.

“It’s immediate, it’s convenient, and a lot of the retailers that are doing new deals in Center City are exactly meeting the needs of a residential population and that’s a good thing,” Gartner said. “For many years, Broad Street was a wall and every year that goes by it is not a barrier for shoppers and diners to look at Center City as a whole. I think 2018 was the year that the wall came down.”

Lauren Gilchrist, senior vice president of research for JLLPhiladelphia, said Center City’s prime retail corridor’s low vacancy rate is a sign that downtown has a healthy retail market.

Gilchrist said Center City has been “under retailed for a long period of time." But the current retail selection in Center City, along with recent developments, show “the city overall has been tremendously successful during this market cycle in capturing growth of young, urban-oriented professionals,” Gilchrist said.

According to the report, foot traffic along the city’s prime retail corridor around Rittenhouse Square “remains strong,” but rising rents on West Walnut Street have also led retailers to pop up on the numbered streets between there and Chestnut, the report said.

While searching for lower rents, retailers also can look at the “burgeoning Center City East retail district,” the report said. Over the next few years, this area will benefit from $910 million in investment and the addition of 1.2 million square feet of retail.

The group expects the Fashion District -- from Eighth to 11th Streets along Market Street -- will add 838,000 square feet of retail and launch in fall 2019. It will add about 125 stores, including Ulta, Forever 21, and City Winery, resulting in a mixed-use space with retail, sidewalks, and cafes.

Among recent projects are the Collins at 11th and Chestnut Streets, which offers 112 rental units and 95,000 square feet of retail including a Target; East Market between 11th and 12th Streets on Market Street, which includes 128,604 square feet of retail including a Mom’s Organic Market and Iron Hill Brewery; the Curtis at 610 Walnut St., which features 63 luxury apartments and 50,000 square feet of retail; and the Independence Collection of three office buildings and a parking garage, which will add 45,000 square feet of retail including the Bourse on 111 South Independence Mall East.

While the retail market continues to evolve to provide shoppers an experience they can’t get online, the Center City District reports burgeoning growth on other fronts. Since 2000, the population in Center City -- defined as between Tasker Street and Girard Avenue and the Delaware River to the Schuylkill -- has risen 21 percent to 190,000.

Millennial residents represent 46 percent of the core Center City population, while wealthy empty-nesters are also moving in. Residents living in greater Center City contribute more than $365 million in retail demand.

Retail has been struggling nationally due to the rise of online sales. As a result, vacancies in this year’s second quarter were 10.2 percent nationally and 8.4 percent regionally, the report states, while the vacancy in Center City’s “prime retail corridors” was 5.4 percent.

In the last five years, Center City has seen a 22 percent growth in both boutique fitness and quick-service restaurants, along with a 10 percent rise in “click-to-brick” tenants, such as Warby Parker, which started as an online store before opening physical locations, according to the report.

The Center City District identified a need for more retail focused on children, as 18 percent of households “in the extended downtown neighborhoods now include school-age children.” Currently, there’s a “scarcity of this type of retail in Center City,” the report said.

There’s also been a 61 percent increase in overnight leisure tourism since 2008, boosting hotel occupancy rates to 78 percent in 2017. This boost has led to 10 downtown hotel projects that will bring more than 130,000 rooms to the area by 2021.

“With tourists increasingly viewing Philadelphia as a travel destination of choice, we expect that retail demand generated by visitors will continue to grow in the years to come,” the report states.