“Retail real estate has entered a phase in its cycle where tenants and their brokers are in the driver’s seat of many deals. With the suburban retail market comprising 69% of the overall retail market in the Chicago metro area, the conditions of suburban retail leasing are – and should be – front and center of the retail real estate market.” shares Amy Hall, COO of Caton Commercial Real Estate Group.
2022 has seen a resurgence of retail store openings nationwide. Retail growth in the Chicago Suburbs has been very strong in correlation with the urban to suburban shift in population in recent years. This retail growth trend is expected to continue in 2023, as more and more people venture back out to retail establishments to touch and feel the merchandise and enjoy the retail experience. Vacancy rates continue to drop as retailers meet this pent-up demand.
Suburban Chicago’s experience is consistent with the rest of the country. U.S. Total Retail Vacancy rates (National index markets only) fell to 4.4% in the second quarter of 2022, according to JLL’s US Retail Outlook Q2, 2022. This is the lowest level in 15 years. Brookfield Asset Management’s Mr. Kingston reported in a recent investors’ call that spending at its 132 U.S. malls is 31% above pre-pandemic levels (Cited from WSJ).
Visitor traffic within Chicago’s suburban retail market has increased 16.6% from the pre-pandemic peak, and leasing activity is up 36.3% year-over-year (YOY), reaching 4.1 MSF through mid-2022, according to Cushman & Wakefield’s Chicago Retail Market Overview September YTD. Despite super-regional mall departures, many big box retail stores closed leaving large vacancies in their wake. Yet strong lifestyle center demand has continued to absorb this space. . . The uses coming in to fill up this space are quite varied.
“As the cost of online advertising has increased, some retailers that started online are looking to real estate to acquire customers,” reported Kate King in “Retail Real Estate Enjoying Biggest Revival in Years,” WSJ, October 4, 2022. In the local suburban market, this is seen with e-commerce giant Wayfair, slated to open in Wilmette in 2023, filling space vacated by Carson’s in 2018.
Experiential retail, including indoor entertainment parks, gaming, and fitness centers, is also a growing market utilizing space left vacant from the departure of big-box retailers. FunCity is slated to open in the Northwestern suburbs, bringing bumper cars and trampolines to River Pointe Shopping Center in Algonquin.
Traditional big box retail has also joined the trend to smaller, more versatile concepts, with Bloomie’s opening in Skokie’s Old Orchard Mall to replace the 200,000 square foot Bloomingdale’s that closed at the end of October, and Market by Macy’s and Macy’s Backstage set to open in Evergreen Park in another space vacated by Carson’s.
Attracting and retaining the right tenant mix is paramount for continued growth and vibrant retail centers. The fundamentals of the leasing process are not enough. Success requires being able to think outside the (big) box to bring in those tenants who will help fill the general retail center space (small 1,000 to 5,000 square foot units) that makes up over half of the Chicago metro inventory.
“Strategy involves a plan, written or not, to create advantage,” according to Graham Kenny, “Strategic Planning Should Be a Strategic Exercise,” Harvard Business Review, 10-4-22. Kenny further explains that strategy is about positioning an organization (or retail center) relative to its competitors, distinguishing between operational and strategic plans while being fluid and able to adjust and change with insight.
While absorption rates are strong and retail shows continued positive growth, it remains critical to make sure that tenant representation is strategic, exercising strong leadership and direction.