Vacancy in Chicago-area retail properties declined for the second straight quarter during the first three months of 2017.
The rate fell to 9.5 percent, down from 10.1 percent in the fourth quarter—but an increase from the year-earlier period's 8.9 percent.
Vacancy is expected to remain more or less steady in the near term as supply of new space is pinched.
"I don't see anything on the horizon that's going to goose the vacancy," said Kim McGuire, a senior vice president of CBRE, which conducted the survey. Not that much new construction is hitting the market, he said, and what does is significantly pre-leased.
Moreover, the unemployment rate fell to a 10-year low of 4.5 percent in March, and consumer confidence rose to its highest level since 2000, spurring demand, CBRE said. Asking rents climbed to $18.65 a square foot from $18.54 in the fourth quarter. Asking rents were $18.75 a year ago.
But any optimism on the retail front is tempered by prospects for a record year of bankruptcies in 2017, as the industry adjusts to more online shopping and fewer visits to the mall. Already this year, bankruptcy filers include the Limited, RadioShack, hhgregg and Gander Mountain. Other retailers, like Sears Holdings and Macy's, are closing stores by the score.
The picture for retail landlords has improved since the third quarter, when vacancy hit a recent peak of 10.2 percent. A major factor was more than 1.3 million square feet flooding the market after Sports Authority's liquidation.
Although the biggest first-quarter leases were for a Mariano's supermarket in Crystal Lake and a Dick's Sporting Goods store in Gurnee, fitness facilities—whether big (LA Fitness) or small (Orangetheory Fitness)—are the hungriest space eaters, CBRE said.
Another bright sector was "power/community" developments, where first-quarter vacancy was 7.2 percent.
Mellody Farm, a 270,000-square-foot mixed-use development in Vernon Hills announced this month, is due for completion by the end of next year. Anchors include a Whole Foods Market, Nordstrom Rack and REI.
Also in the category is Kildeer Village Square under development in north suburban Kildeer.
The lowest vacancy was in the city north of the Eisenhower Expressway, at 3 percent, while the west suburbs clocked in at 5.8 percent. Far west suburbs had the highest submarket vacancy (12.9 percent), while neighborhood vacancy overall was 13.5 percent.
"Anything that has 'far' in front of it has high vacancy," said McGuire, a result of overly optimistic developer projections for housing growth. (The far southwest suburbs were an exception, with 5 percent vacancy.)
Although fast-casual restaurants have propelled leasing, the category is not immune to competition. Two pizza chains retrenched: Toppers closed all five Chicago-area locations, and Pie Five shut eight of nine local restaurants.
On the South Side, Binny's Beverage Depot moved its Hyde Park location to 47th Street in the Kenwood neighborhood, increasing its store size to 11,000 square feet from 3,500.