Market focus: Chicago’s shifting retail landscape

Chicago is one of the nation’s leading retail markets and a new report from Mid-America Real Estate details the area’s evolving growth patterns, retailers driving development and hot properties.



The new research from Mid-America, called “Chicagoland 2016 Shopping Center Report,” shows that development activity remains at relatively low levels from a decade earlier and documents interesting shifts in construction and tenancy. As the firm noted in previous reports, the average of new development in the Chicagoland area continues to hover around two million square feet of new retail space per year, down from headier years when five million plus square feet of new retail was built for expanding department store and mass merchandisers.



According to Mid-America, here to stay are grocery-driven projects and smaller footprint urban infill developments. Factoring a 22% decrease in shopping center development from 2.65 million sq. ft. in 2014 to 2.07 million sq. ft. in 2015, the 2016 Shopping Center Report anticipates another 27% decrease with approximately 1.51 million square feet planned for the coming year. However, while new development had been increasing steadily since 2011 when new retail space hit an all-time low of 1.03 million sq. ft., this incremental drop is insignificant.



“No one has stopped doing deals since 2011. The difference in square footage planned for 2016 compared to square footage completed in 2014 and 2015 is just a result of construction timing. People who were doing deals then are still doing deals now,” said Andy Bulson, author of the report and Mid-America’s principal/director of suburban tenant representation.



Although the size of the projects has contracted, the number of new developments and expansions has remained steady over the past three years. With 15 new developments in 2014 and 12 in 2015, the anticipated 14 projects in 2016 is right on par. However, with an ever-changing retailer landscape, the size and scale of projects are being cut back.



One of the biggest changes in Chicagoland is the rise of gourmet grocery led development. Nine of the 13 developed centers in 2015 were grocery-anchored, and nine of the 14 planned centers in 2016 will be grocery-anchored.



“We will hopefully continue to always have one big New City-like project every year,” Bulson said, referring to a major mixed use development with 370,000 sq. ft. of retail. “However, even New City is grocery-anchored. It’s an urban presentation of a suburban center after all.”



The Mariano’s grocery chain anchors New City and led grocery development overall in Chicagoland with six new centers that totaled 815,000 sq. ft. The gourmet grocer does not look to slow down in 2016 with two more centers planned for 139,300 sq. ft. Walmart also sustained its typical and steady growth with two centers opened in 2015 for a total of 390,000 sq. ft. and two more planned in 2016 for a total of 377,000 sq. ft.



The singular non-grocery-anchored center planned in the suburbs of Chicago for 2016 is Bond Companies’ Kildeer Village Square, a 160,000-sq.-ft. center anchored by Nordstrom Rack.



“The center is being developed directly adjacent to Bond Companies’ Kildeer Marketplace which is anchored by Whole Foods. With such proximity, one could make the argument that this is essentially an expansion of an existing grocery-anchored center,” said Bulson.



Following the grocery trend, three centers planned for 2016 look to bring grocers to widely considered food deserts in the south suburbs. Walmart will develop two new stores in Olympia Fields and Richton Park while Meijer will expand to Flossmoor.



“Retail in this area of suburban Cook County has long been plagued by extraordinary high real estate taxes, as well as high sales tax,” said Bulson.



Another major trend documented in the report is the redevelopment of existing centers as well-positioned but obsolete retail buildings being torn down and redeveloped.



“For a 10 year period everyone said, ‘Keep going west!’ But there aren’t any new rooftops to chase anymore, so everyone is looking for old space to redevelop now,” said Bulson.



A prime source of space in the coming years will be Kmart, which Bulson said, “is sitting on some of the best retail sites in the market.”



Lastly, the report documents how new developments overall are shrinking in size. For example, although new retail development has fluctuated over the last 10 years, there has been a 45% reduction in average center size.



“Large anchor tenants like Target, Kohl’s and home improvement retailers aren’t expanding anymore, and so what you have are smaller un-anchored centers,” Bulson said. “We’re also seeing shadow-anchored projects coming up next to freestanding Walmart, Menard’s and Meijer centers. They’re adding new outlots and bringing in smaller shops.”



For more details visit MidAmericagrp.com.