While office rents in Center City's nicer towers have been more or less flat for 20 years, retail leases for the nicer stores really swing: "Rents peaked at $180 to $185 a square foot in 2008, bottomed at $75 to 80," and have most recently bounced back up, says Douglas J. Green, principal at MSC, Michael Salove's Rittenhouse Square-based agency that represents landlords and store chains here and in New York City.
MSC's new signings include the Japanese-owned clothing chain Uniqlo, which has taken 49,000 square feet at 1608 Chestnut St. (Owner Fast Retailing Inc. also owns Theory, which last fall added a Walnut Street outpost.)
The firm's landlord clients include the University of Pennsylvania, Drexel University, and the Philadelphia-based mall owner Pennsylvania Real Estate Investment Trust (PREIT), which has been trying to lure Bloomingdale's or at least Target to the Gallery (where Kmart is leaving a three-story hole next month).
Salove is also helping PREIT find tenants for the group of properties it recently bought along 15th Street. MSC and its rivals are promoting Chestnut Street sites on the theory that as the downtown residential population rises, quiet Chestnut offers more large spaces for rent than comparatively crowded Walnut.
"In the city, the commodity is the space," and it matters a lot what street and what corner you're talking about, Green adds.
Even on hot blocks, national store chains have only so much patience. "It used to be we competed on a very regional level," says Salove, who started the agency in 1989. "But now, the minute we're dealing with a nice store concept, plenty of credit, everything's going well - but as soon as something smells funny on a transaction, construction costs can be a major obstacle, they tell us, 'We'll go to Houston instead.' Or Seattle."
What does it tell us that the former Center City Burberry, with its professional male clientele, has been replaced by a Michael Kors "jet set styles" store? Says Green: "Kors is emblematic of Philadelphia: It's a young city with grad students and young professionals living in the city, no kids, renting a nice place, going out to dinner three, four times a week." Those shoppers go to Kors; they can also "support multiple Uniqlos and H&Ms," places where lawyers and legal secretaries can shop at the same time.
What about the hope and hype that Center City, with all its new apartments, will attract a Nordstrom or Bloomingdale's or a Neiman Marcus? Or the high-end chain boutiques?
"We have a nice pocket of affluence here, but it's not that large," said Green. "People ask, 'Why is Louis Vuitton not on Walnut Street?' It's because, while those shoppers are in Philadelphia, there aren't enough to warrant having both the Louis Vuitton store in King of Prussia and another in Center City. If your barometer for success is Louis Vuitton, you need to move." The city might not get a Nordstrom; it's getting a Nordstrom Rack, in the old Daffy's.
Regionally, the highest-end stores have concentrated at the King of Prussia and Cherry Hill malls. Elsewhere, PREIT, for example, is replacing vacancies with high-end restaurants (at Moorestown Mall) or medical offices (Exton, Plymouth Meeting) or even housing (Voorhees).
There are still places in the suburbs where more retail finds a market - where office centers have grown with few stores or restaurants. Salove recently helped Brandywine Realty Trust fill a retail strip near the Radnor Financial Center.
Salove expects PREIT will plant urban-friendly restaurants and mid-market clothing stores at the Gallery, plus entertainment - a movie theater, maybe even "a high-end bowling alley." PREIT boss Joseph Coradino could give more details when he releases 2013 earnings late Tuesday and meets with investors Wednesday.