Experts say Center City retail stabilizes but has room to grow 

On its face, the imminent closure of a 3-year-old Giant Heirloom grocery store on East Market Street would seem to underline the ongoing challenges for retailers and commercial landlords in that economically stagnant neighborhood, and Center City broadly.

“It’s not great news for a corridor that could obviously use some good news,” said Clint Randall, vice president of economic development at the Center City District, Philadelphia’s downtown business organization.

Yet it could be argued that the Giant closure, scheduled for Dec. 28, is really an outlier amid a generally positive environment for food markets and stores across central Philadelphia, Randall said during a presentation Wednesday focused on the area’s retail sector.

“If you don’t necessarily live downtown, this might not be something you feel in any kind of intuitive way, but we’ve actually had 18 full-service supermarkets open across Greater Center City since 2011, and we have five more set to open just in the next calendar year,” he said. “Even if a single store closure is going to leave a hole in a specific part of our fabric, the fabric itself is getting more intricate all the time.”

That narrative about grocery stores reflected the generally sunny economic view offered in the latest Center City District report on downtown retail, and by experts who spoke at the event.

Overall, the retail occupancy rate for the area, spanning from Girard Avenue to the north to Tasker Avenue in the south, has stabilized at 83%, the report says. That’s lower than the all-time high of 89% recorded around 2018, but shows a decent recovery since the lows of the pandemic and represents Center City’s “new normal,” Randall said.

Testing cookies’ staying power

The CCD report lists about 100 recent business openings over the last couple years, about 70 percent of them cafes, restaurants, bars and other food establishments. That includes a mini-trend of new cookie shops this past year, such as Insomnia Cookie’s flagship store and corporate headquarters at 1 South Broad Street. 

“These things come in waves,” Randall said, referring to the cookie shops. “We all remember the [pre-pandemic] cupcake wave. We’ll see if cookies have more longevity.”

An additional 41 stores, mostly more food and beverage businesses, are expected to open in the coming months. They include a new Brooklyn Dumpling Shop and an izakaya and sushi spot, both on Sansom Street; several coffee shops on Walnut, Chestnut, and 18th streets; and an Aritzia clothing store and Equinox gym on Walnut. 

The district has 1,792 retail businesses overall, a 4% increase since 2019, a CCD survey found. Despite the cookie shops and other recent openings, the number of food and beverage establishments is actually down 6%, at 568. 

There are 513 retailers such as clothing stores, a 15% increase over 5 years ago, and 484 service providers such as hair salons and gyms, a 4% increase.

Those figures apparently show the impact of more people working from home — rather than commuting into Center City and going out for lunch — as well as the construction or conversion of more residential buildings, Randall said.

“We’re starting to see a retail mix that is more catering to the growing and increasingly affluent residential population,” he said, “perhaps relying less on daytime or transient populations of other shoppers, like visitors, conventioneers, etc.”

It takes money to make money

One factor that draws local, national, and even international retailers to Center Center is the area’s sheer wealth, Randall said. 

A new analysis of the nation’s most affluent zip codes found that 19103, which includes Rittenhouse Square, is the 24th wealthiest in the country, with 19147 (Bella Vista, Queen Village, and Hawthorne) at #43 and 19106 (Old City, Society Hill) at #50. Zip code 19130 (Fairmont) ranked at #102.

Those household dollars make the Rittenhouse-Walnut-Chestnut shopping area attractive to “digitally native brands” looking to establish brick-and-mortar stores and to other companies, and have bolstered retail expansion in growing neighborhoods, Randall said.

“As density increases, as spending power increases, we’re starting to see these new retail nodes and mini secondary shopping districts emerge in places like Spring Garden Street and Washington Avenue. These arterial streets formerly lacked a lot of residential, first, but I think lacked kind of an identity or a definition,” he said. “We’re starting to see these aggregations of new places.”

New or denser housing initially brings national retailers like groceries, gyms, and child-care providers, drawing shoppers who then attract small businesses, he said.

As of 2022, Center City residents had an average household income of about $152,000, up from $114,000 in 2017, according to Census data cited in the CCD report. The median home value was just shy of $492,000.

CCD also surveyed 376 people who live in or near Center City over the summer about their travel and shopping behaviors, including which retailers they’d like to see come to Center City. 

Topping the list were Zara (which closed its Walnut Street store in 2019), Ambercrombie, and Nordstrom, as well as Crate & Barrel, REI, and Dick’s Sporting Goods. Others requested included Wegmans and Aldi, a Lego Store, and movie theaters.

“There is actually significant unmet demand, because there is perhaps more overall, aggregate spending power than many folks realize in Center City,” Randall said.

Shift to small spaces leaves a glut of large

Following Randall’s presentation, two experts discussed broad industry trends affecting the city’s retail environment. For example, a supposed national “retail apocalypse” of a few years ago actually turned out to be, in part, about badly run older companies failing and being supplanted, said Michael Berne of MJB Consulting.

“At the same time, there’s this whole new cadre of brands that are appealing to a younger customer for whom the Gap, if it ever was relevant, certainly hasn’t been for a long, long time,” he said. “A lot of them were digitally native, clicks-and-bricks — not all of them — but that’s what you’re really seeing on Rittenhouse Row. It’s not been a retail apocalypse. It’s just the changing of the guard.”

He noted that there had been “a lot of consternation” over the shuttering of some Wawa stores during the pandemic and more recently, and of many Rite Aid locations, in part because they both are Pennsylvania companies, but he said Center City retail was heading in the right direction nonetheless.

Jacob Cooper, a partner and managing director at commercial real estate firm MSC, agreed that the presence of newer “lifestyle retailers” is a bright spot for Philly, but added that the glut of vacant, large former drugstores and national chain stores was creating financial challenges for landlords in many cities who want to provide homes for small shops.

“It adds a substantial amount of space to the supply market,” he said. “It doesn’t look great on the street for all of us that are walking around, and puts some quality-of-life issues back on the street.”

“Those are the things that we as a retail community need to focus on, on filling and finding users for. It’s not as easy as the 1,000- to 2,000-square-foot lifestyle retailers that are opening up on the 1700 block of Walnut. It’s the 6, 7, 8, 9, 10,000-square-foot users that are much more difficult to find in this environment,” Cooper said.

Online sellers, especially Amazon, have also changed the world of retail, but online companies have to spend large sums on Facebook and Google ads to attract customers and they increasingly want to open bricks-and-mortar stores to act as “billboards” instead, Berne said. 

He said Amazon’s various efforts to move into in-person retailing have largely foundered, other than its acquisition of Whole Foods. He noted that the company is apparently planning to open an Amazon Fresh store in Northern Liberties and is likely to eventually open one of its new, smaller Whole Foods Daily Shops in Center City.

Here come the Sixers

Looking to the future, both experts were enthusiastic about the proposed new Sixers arena on Market Street and its potential to rejuvenate the larger Market East area, including the block where the doomed Giant Heirloom store is located. 

Berne described it as a “shot in the arm” for nearby real estate development, while Cooper said he was excited about the “catalytic effect” it will have on business growth and its potential to create a “bridge” between the lively 13th Street shopping and restaurant corridor and Independence Mall. 

“We are not seeing retailers making leasing decisions right now based on what could be happening in 2031, but I don’t think it’s that far off at all,” Cooper said. “Starting next year, especially for buildings that may not be built yet, for spaces that may be a few years out, I think it’s going to be very real.”

At the same time, Berne praised the Fashion District mall and said it was unfortunate that it will be partially replaced by the arena. He described its revamping in 2019 as a groundbreaking and unique attempt to create a “semi-outlet” or “value-oriented” mall in a U.S. downtown, which could have succeeded if the pandemic hadn’t happened shortly after it reopened.

“This is, for all the great things about it, still a city with a lot of poverty. That is a site with great transit access, and I know that two-thirds of it will remain, but I do worry a little bit about losing that kind of more-moderate-income kind of retail in downtown, in Center City,” he said. “That’s one thing that makes me uneasy.”

The arena plan has drawn intense opposition from Chinatown residents who fear its impact on their neighborhood, and from critics of the Sixers’ community benefit agreement and other aspects of the project, but appears headed for approval by City Council and the mayor. Council votes on enabling legislation are tentatively scheduled for later this month.

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