The state of Chicago’s retail anchor space is a bit of a dichotomy currently. The metro area has seen the most leasing activity since 2011. Despite that, availability for big box retail space hit a record high in 2017, indicating that demand is unable to keep up with the amount of space coming on line as large retailers continue to exit the market, according to a recent report from CBRE.
According to the 2018 Retail Anchor Report, the Chicago-area recorded 2.6 million square feet of new retail anchor leasing activity in 2017, which was considerably higher than the previous year and the most activity the area has seen since 2011. Those leases were dwarfed, however, by the 3.8 million square feet of newly available space, bringing the market’s total to 12.3 million square feet, the largest amount in the 10-year history of the report. for the second straight year
“We are seeing a lot of activity in the market, especially from a new set of users,” said Joe Parrott, CRX, CLS, senior vice president, with CBRE and author of the report. “However, it’s unable to keep up with the amount of new space hitting the market due to bankruptcies and liquidations. Thus, anchor space vacancy continues to trend up.”
Parrott labels the big users today “the five f’s” for fashion, furniture, fitness, food and fun. The latter category includes entertainment venues such as trampoline parks, movie theaters or new bowling concepts. But while these non-traditional retailers are active, time is a factor as completing these types of deals often takes longer.
“These new users are the next evolution in retail, as consumers continue to be drawn to retailers that can provide an experience,” said Parrott. “Additional time is often required to complete these deals as they can require new zoning or waivers from other anchors to complete the deal.”
The combined increases of the amount of space coming on line and the time required to close transactions has led to an average market-to-lease time of 42 months. This, too is a new high and in fact only a quarter of anchor spaces that have become available in the past four years have been leased in less than 12 months. In that time, rents have also slipped, down to $10.72 per square foot.
“Retailers have more options now, and they are often targeting the best locations,” Parrott said. “There are still plenty of active users in today’s market, but it is more challenging, and owners need to know the market conditions, be prepared to structure deals competitively and be flexible to achieve success.”