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Demand for retail space has rebounded in the Chicago area, but being a retail developer still isn’t what it used to be.
Developers and retailers are expected to complete nearly 2.1 million square feet of shopping center space in the region this year.
That’s down 14 percent from the 2.4 million square feet finished in 2014 and well below the average of about 4.3 million square feet delivered annually between 1989 and last year.
Even though the economy is improving and consumers are benefiting from lower gasoline prices, retail chains that open the kind of big stores that allow real estate firms to launch new developments have largely maxed out in the Chicago area.
“Going forward, we’re going to see things in the 2 million-square-foot range,” said Andy Bulson. “The reason for that is larger anchor tenants like Target and Kohl’s, around which shopping center development was completed over the last 15 years—their programs are complete.
“We need some new retail concepts. Is there somebody out there that’s going to be the next Target or Kohl’s? I don’t know. We really could use somebody like that to drive development.”
Another brake on retail development, Bulson added, is the opportunities retailers have to fill in existing spaces left empty after chains shuttered stores. Dominick’s exit from the market is the most dramatic example, but there are also Kmarts and other stores sitting vacant.
Grocery stores will anchor nine of the 11 shopping centers expected to be completed this year. Mariano’s Fresh Market will open in five of the nine centers with grocers.
While this year’s expected total of nearly 2.1 million new square feet is double the low in 2011, it’s less than a fourth of the 8.4 million square feet of space builders and retailers added in 2007, the peak year for new retail projects in the market.
FOCUS ON SMALLER PROJECTS
“I don’t see anything in the foreseeable future that gets us back to those kinds of numbers,” said Gary Pachuki, principal at Chicago-based development firm IBT Group, referring to the volume of new construction before the crash.
In the current market, retail developers are largely focusing on smaller projects, seeking to work with the grocery chains that are expanding and staying on the hunt for development sites in the city, Pachuki said. It’s a competitive environment to find parcels that work.
“It’s a harder slog to find deals. People are going to start finding deals in different areas, because the housing market is changing,” Pachuki said, mentioning emerging neighborhoods in Chicago like Pilsen and Logan Square. “It’s going to be difficult to find that five acres of land.”
IBT is part of ventures developing two new shopping centers. One is a 150,000-square-foot project at 43rd and Pulaski Road in Chicago’s Archer Heights neighborhood that will feature a Ross Dress for Less store, a PetSmart and other tenants. The other is a 90,000-square-foot development in Evergreen Park anchored by a Mariano’s Fresh Market.
Mid-America’s forecast calculates the amount of new square footage opening in shopping centers with at least 40,000 square feet. The report covers new developments and expansions of existing centers by real estate firms or retailers. It doesn’t include outlet malls.
Among the new shopping centers expected to open in 2015:
• The approximately 360,000-square-foot New City development at Halsted Street and Ogden Avenue near the Lincoln Park neighborhood in Chicago.
• A 195,000-square-foot property anchored by Meijer at Rollins Road and State Route 83 in far north suburban Round Lake.
• A 100,000-square-foot development anchored by Mariano’s at Skokie Boulevard and Dundee Road in Northbrook.
Source: Chicago Real Estate Daily January 26, 2015 Micah Maidenberg