Philly's Urbanizing Suburbs Are Siphoning The Coolest Retail Tenants Away From Center City
As Philadelphia continues to grapple with the effects of persistent hybrid work on its downtown businesses, its suburban counterparts are enjoying the new reality.
Retail is perhaps the hottest asset class in several suburban submarkets around Philadelphia, panelists said at Bisnow’s Philadelphia Suburbs State of the Market event at the Crowne Plaza King of Prussia on June 28. Increased remote work among suburban residents has driven previously unheard-of levels of daytime traffic in places like Exton and Upper Dublin.
“These communities that were generally quiet Monday through Friday, because everyone left and went to work in the city, are now really robust,” MSC Retail principal Doug Green said at the event. “And if you're working from home, it's not the traditional, structured 9-to-5 that you have in the city. So people are out and about, and the suburbs are busier than ever because of that.”
Though the first year or two of the pandemic saw a demographic shift from the city to the suburbs, panelists downplayed population movement as a driver of suburban retail success. Instead, they credited the increasing urbanization in well-known areas like King of Prussia and Conshohocken, as well as more developer-driven projects in Upper Dublin and Exton, as what brought more traffic to local retail.
As those mixed-use developments have delivered and created dense, walkable nodes, an increasingly hip set of operators has added a new level of appeal for the coveted younger demographics, Green and BET Investments President Michael Markman said.
“You’ve got Mark Vetri in Bryn Mawr, Jose Garces in Radnor, Spread Bagelry in Horsham,” Green said. “Ten years ago, some of these restaurateurs who have since ended up in the suburbs, you wouldn't even ask them if they would go to the suburbs. I mean, they would laugh you off the phone.”
The restaurant operators who have expressed interest in BET’s pending redevelopment of the former Prudential offices in Upper Dublin — adjacent to BET’s retail-and-residential Promenade at Upper Dublin — are finally of a caliber to make Markman’s daughter consider leaving her Northern Liberties apartment for the suburbs, Markman said.
“It’s still [about] the walkability and the cool factor for the young people who live in the city, and that’s never going to change,” he said.
Not all forms of suburban retail are joining in the fun. Enclosed malls, aside from the indomitable King of Prussia Mall, continue to bleed tenants and be left behind in the current environment — especially Willow Grove Mall, Exton Square Mall and Plymouth Meeting Mall, all owned by PREIT, Markman and Philadelphia Suburban Development Corp. President and CEO Mark Nicoletti said.
“[Willow Grove Mall] is going to die,” Markman said. “I've been watching that property forever just degrade, degrade, degrade, degrade. And it's got to be a major redo.”
Demand for new retail space has been robust in every submarket that can plausibly lay claim to a walkable area, but it isn’t all coming from the proliferation of remote work or demographic shifts, panelists said. Part of it is that the ongoing presence of malls is keeping overall supply levels too high to justify copious new development, but without the kind of supply that the most attractive tenants like big-name restaurateurs actually want.
“There are many places with pent-up demand,” Green said. “But whether it's Willow Grove or it's Exton, there's millions of square feet of supply. But the demand is not for interior mall [space]. It's not for a former 80K SF, 100K SF or 120K SF box.”
Another reason that more restaurants with cultural cachet are opening in the suburbs is the cost of construction, IMC Construction President and CEO Michael Lloyd said.
“We're still seeing tremendous development demand in the city,” Lloyd said. “What's happening is the economics aren't seeming to work. There’s a very significant cost differential between developing in the city versus in the suburbs, and we are seeing price compression in the suburbs, but that is not occurring in the city.”
Amid the good news, there is a growing tension for retail in the suburbs that flows directly from its recent success, Green said. If walkability has proven to be such a winning formula in the suburbs, then the car-oriented formats familiar to retail developers and users no longer apply and more dense layouts are needed.
“As the urbanization of the suburbs continues, retailers are going to have to figure that out quickly,” Green said. “Because the vacancy rates are very low; retailers in the suburbs are really starving for space. And they're going to have to figure out how to operate in these kinds of urban-type environments.”
