CHANGING COMMERCIAL REAL ESTATE TRENDS IN PHILADELPHIA

CHANGING COMMERCIAL REAL ESTATE TRENDS IN PHILADELPHIA

BY NICK JANN, SENIOR MANAGER OF INDUSTRY RESEARCH | GBCA

Downtown Philadelphia retail has long relied on its daily population of commuters for business activity. The region’s commercial real estate market has experienced significant shifts in recent years, particularly due to the pandemic's longterm impact on work habits and urban activity. As hybrid and remote work models grew increasingly normalized, the city's retail landscape evolved, driven by changing consumer patterns and demographic shifts. These transformations are especially clear in Center City, where the demand for retail space is now largely resident-driven rather than dependent on daily workers.

Shift from Office to Resident-Driven Retail

Prior to the pandemic, Center City Philadelphia's retail market relied on commuting office workers and support staff. With firms increasingly adopting hybrid work models, the flow of these consumers has declined. Despite some employers, including the City of Philadelphia, mandating a full return to offices, many businesses still struggle with high vacancy rates. This decline in office-based consumer activity has significantly reduced the size of the city's retail trade area, shrinking from 2,500 square miles in 2019 to just 970 square miles in 2024.

Residents have now become the primary source of demand for retail in Center City. Data from 2024 shows that the percentage of pedestrians living within one mile of the city's prime retail corridors (Walnut and Chestnut Streets) has increased by 76% since 2019. This shift has reshaped the city's retail activity, with weekends—particularly Sundays— emerging as one of the busiest shopping days, driven by local residents rather than office workers. This change is also reflected in the types of retail establishments that are thriving, with experiential and lifestyle brands becoming increasingly popular in Center City. In addition to those already existing, a Formula One simulator and Five Iron golf simulator are coming online in downtown Philadelphia in 2024 as well.

Multifamily Residential Boom Fuels Retail Demand

The growth of Philadelphia’s residential population, especially in Center City, has played a key role in sustaining retail demand. Since 2010, Center City's population has grown by 27.8%, supported by a significant number of office-toresidential conversions. This trend has created a unique urban environment where mixed-use developments blend office, multifamily, and retail spaces. These developments resemble the mixed-use projects in places like South Philadelphia and Fishtown. Recent luxury residential projects, such as The Josephine on Sansom Street and One Thousand One on Broad Street, have further intensified the residential presence in the city’s core. This multifamily growth has not only increased foot traffic but also reshaped retail offerings to meet the needs of a resident-driven market.

Retail Leasing Market Trends

In Greater Philadelphia, the retail leasing market showed positive signs in the third quarter of 2024, marking the first time this year that the market saw positive net absorption. Grocery, discount, and experiential retailers have driven much of this demand. With limited availability of quality retail space, bankruptcies and closures of large retailers like Big Lots and LL Flooring have created opportunities for smaller, expanding businesses to enter the market.

Experiential retail is seeing considerable growth, with brands like Ace Pickleball and Five Iron Golf expanding their footprints. Additionally, discount retailers such as Ocean State Job Lot and Ross Dress-For-Less have opened new locations in the region, responding to a consumer base that has become more price-sensitive due to economic uncertainty.

Implications for the Local Construction Industry

Philadelphia’s commercial real estate market is undergoing a transformation, driven by the city’s growing residential base, evolving consumer habits, and post-COVID-19 work adaptation. As office workers play a diminished role in retail demand, residents and experiential offerings are becoming the backbone of the market. This shift suggests that future retail spaces will need to cater more to residents, with a focus on experiential and community-centric developments.

For the construction industry, this trend implies an increasing demand for mixed-use developments that blend residential, retail, and recreational spaces. Developers will likely continue to decide the most cost-effective ways to repurpose older office buildings into multifamily units, a process that requires significant renovations and retrofitting. Additionally, the construction of new luxury multifamily buildings, particularly in Center City and surrounding areas, will continue to rise, driving demand for both residential and commercial construction projects. The growth of experiential retail also presents opportunities for specialized construction projects tailored to entertainment and lifestyle venues, further expanding the role of the construction sector in Philadelphia's evolving real estate landscape. In this changing environment, construction firms with expertise in adaptive reuse and mixed-use projects will be particularly well-positioned to capitalize on these new market demands.