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Store closings by chains like Sports Authority have left some big empty retail spaces throughout the Chicago area, but they don’t seem to be dragging down rents—yet.

That’s the conclusion of a new report from Reis, a real estate research firm, that should help the optimists’ case in the ongoing debate over the future of shopping centers. A recent surge in retail bankruptcies and store closings has cast a pall over the sector, with pessimists arguing that the rise of e-commerce has set brick-and-mortar retailing on a path of irreversible,  long-term decline. 

But the Reis report indicates that the cup is half full for now, pronouncing that “there is very little evidence suggesting that the closings had a direct impact on rents.”

New York-based Reis tracked 470 store closings by big chains including  Sports Authority,  Sears, Kmart, Macy’s and JCPenney, examining their impact on metropolitan markets. Since 2015, the chains have shut down 1.18 million square feet of space in the Chicago area, third-most in the country after Philadelphia and Houston, according to Reis.

But Chicago is such a large market that the closings represent just 1.1 percent of all retail space here. By that metric, the Chicago area ranks 39th among U.S. metro areas, according to the report. New Orleans has the highest percentage, 8.0 percent, followed by Long Island, N.Y., at 3.7 percent and northern New Jersey, 3.6 percent.

Reis then took its analysis a step further by trying to measure the impact of closings on retail rents. In each market, the firm compared retail rent growth in fourth-quarter 2016 to rent growth in fourth-quarter 2015.

Though a high percentage of closed retail space theoretically should translate into a slowdown in rent growth or even a decline in rents, Reis did not find a strong direct connection.

In the Chicago area, retail rents rose over the period but at a lower rate. Rents increased 0.35 percent in fourth-quarter 2016, down from 0.51 percent in the year earlier period, according to the report.

The trend here was fairly typical. In the 10 metro areas with the highest percentage of closings, rent growth actually accelerated in five of them. That included New Orleans, where rents rose 0.11 percent, according to Reis.

“There are a number of economic factors that led to the closing of these stores, including consumer tastes for brands, changing spending habits towards ‘experiential,’ poor planning by retail businesses as well as the rise of e-commerce,” the report says. “This analysis suggests that all of these factors are affecting bricks-and-mortar retail businesses, but the closing of the larger stores is not necessarily hurting retail rent growth as directly as many would assume.”

The Reis report concurs with a recent  CBRE report  finding that the Chicago-retail vacancy rate fell in the fourth quarter while asking rents rose.

Reis also examined employment trends in the retail and restaurant sector. Retailers and restaurants employed 469,600 people in the Chicago area in fourth-quarter 2016, up 0.9 percent from a year earlier, according to the Reis report, citing figures from the Bureau of Labor Statistics. Tacoma, Wash., led the nation, with a 6.3 percent increase, followed by Chattanooga, Tenn., at 6.2 percent.

Nationally, retail and restaurant employment rose 0.3 percent, according to the report. Year-over-year employment fell in just four out of 82 metro areas tracked by Reis.

“The fact that so many metros are still adding retail jobs at a rate that is in line with overall job growth suggests that the retail industry is not suffering significantly from the store closures,” the report said.

Source: Crains Chicago Business May 1, 2017 Alby Gallun