Has Center City's retail revival come at a cost?
National chains began flocking to downtown Philadelphia in 2013, including Michael Kors, Vince, and Nordstrom Rack.
As rents soared beyond the reach of smaller, independent shops, many spaces switched over to national chains, especially on prime blocks along Walnut and Chestnut Streets.
There's a lot of good news in this trend. Independent stores have relocated to long-neglected blocks that are now rapidly improving Center City overall.
But there can be a more homogeneous feeling along the elite corridors of Chestnut and Walnut. The most recent indy to declare defeat was Knit Wit last week when it announced a "lost-our-lease sale." Just Salad, a New York healthy fast-food chain, will replace the women's clothier at 1729 Chestnut St.
Knit Wit's owners couldn't absorb a doubling of the rent for the 2,200-square-foot space — the same happened in 2012 when Knit Wit got outpriced from 18th and Walnut Streets.
"There is another side to the retail story," observed Patricia Blakely, executive director of the Merchants Fund, which administers grants to local small businesses. "Small and local retail cannot compete with national and international chains.
"The cost of space is forcing our local brands out of high-quality retail spaces."
Blakely's office was displaced from 1616 Walnut St. and forced to move to 1528 Walnut St. just more than four years ago. She said her old building was converted into apartments to help accommodate Center City's growing population.
A real estate agent told her "'Welcome to Brooklyn,'" recalled Blakely, alluding to exploding rents in the New York City borough.
Joan Shepp, another longtime tenant of 1616 Walnut St., relocated her women's boutique nearly three years ago due to her rent tripling. She set up a temporary shop on the second level of the Shops at Liberty Place in 2014 before moving to her new home at 1811 Chestnut St., across from Boyds.
The Children's Place, which sells kids' apparel and accessories, moved six years ago from 1724 Walnut St. to 1535 Chestnut St.; ToBox, an upscale men's shoe store, packed up from 19th and Ludlow Streets to 1822 Chestnut St. last August; while European high-end furniture store Usona moved from 16th and Sansom Streets in October to 1633 Locust St., about a block from Rittenhouse Square. The store plans to open late next month.
Fitness chain SoulCycle took over Usona's old spot and will debut its studio on March 7.
"It was a mutual decision between us and the landlord," said Branko Jakominich, Usona's director of marketing. "Obviously, a national chain is able to offer a lot more for a space."
According to the Center City District (CCD), 15 years ago there was only one strong retail street downtown: West Walnut.
West Chestnut Street lagged and East Chestnut Street had a vacancy rate up to 20 percent on some blocks.
Fast forward to 2013: National retailers considering Philadelphia would locate only along the city's prime retail district, namely West Walnut Street between Rittenhouse Square and Broad Street, said the district's CEO, Paul Levy.
But then, as Center City's population, tourism, and jobs all grew, local boutiques and national tenants "began migrating to adjacent streets."
West Chestnut Street was transformed; pedestrian counts have surged almost 50 percent over 2013 volumes, said the CCD. Foot traffic on West Chestnut Street now equals, if not surpasses, that of West Walnut Street, signaling that destination retailers can locate almost anywhere in walkable Center City and shoppers will follow.
After lagging for more than 30 years, East Chestnut Street is finally seeing retail reinvestment.
But will it last?
There's concern because millions of square feet of new commercial space have "yet to be absorbed," said Jacob Cooper, managing director for real estate firm MSC Retail, which handled the Just Salad deal, among other national brands. "This will naturally suppress rents across the board ... but will hit the B and C locations the worst ... meaning the traditional neighborhood retail corridors. My advice to retail developers and investors at this stage in the game: Build lean and mean retail spaces."
Michael Gorman, senior vice president at Metro Commercial, brokered the Joan Shepp deal when the boutique moved from Walnut to Chestnut.
Her business was strong enough that "she could afford to move to an inferior retail location," Gorman said. "The upside is that when these [businesses] relocate, it ultimately makes the block they go to better, and thus makes the overall Philadelphia retail landscape better."
While 48 national retailers have opened a Center City location since 2013, the proportion of city and regionally based tenants downtown has remained pretty stable at 77 percent of all retailers, a CCD survey found last year. The report also found that the city had 31 more independent boutique retailers than in 2013 – proof that it's not just national tenants who are growing, but also the local retailer base.
Take Rikumo, which specializes in Japanese imported items. It moved into a much bigger, well-lit space from an obscure, 400-square-foot box attached to a warehouse at 13th and Callowhill Streets. Its relocation to 1216 Walnut St. in January 2016 was "strictly for expansion and to take our store to the next level," said operations manager Mary Sulzbach. "We have more of a presence now."
Common Ground, a sneaker shop that opened its first brick-and-mortar store at 1205 Walnut St. just over a year ago, specializes in after-market, hard-to-find sneakers. Its Nike Adapt Auto Lacing sells for $2,000 while New Balance 999s go for $80.
Owner Phil Moore said he began looking 18 months ago between 20th and 12th Streets and between Walnut and Chestnut. Rents ranged from $8,000 to $10,000 a month for 1,000 to 1,200 square feet.
"The rents were so high I didn't bother to actually check out sites," Moore said. Since he opened in December 2015, he is paying considerably less for his 1,800-square-foot store at 1205 Walnut St.
Shepp, more than two years into her new space with a fancy staircase and a garden for fashion shows, gushes about all the room she has.
"I love my new space," she said from the Chestnut Street store. "My space is much bigger than my last one – by 3,000 square feet more. Everything happens for a reason.