With more than 560 million square feet, the Chicago market lays claim to the second-largest inventory of retail product in the nation. Though pandemic shutdown orders led to negative absorption within that space during the first quarter, the sector has surprisingly recovered most of that ground with positive gains during Q2.
The Chicago retail sector absorbed 23,170 square feet in the second quarter, according to data released by Lee & Associates. This positive absorption nearly offset the negative 24,395 square feet measured in the first quarter of 2020.
This is an optimistic sign, but other retail metrics are more in line with what should be expected due to the COVID-19 situation. The area’s vacancy rate ticked up, for example, rising to 6.30 percent. That figure stood at 6.10 percent both one quarter and one year prior. Average asking rental rates also dropped, declining by $0.19 per square foot quarter-over-quarter, settling at $19.06 per square foot per year during Q2 2020.
The pandemic will be with us for a while and many markets, Chicago included, may have to curtail some retail practices or shut down again altogether if there are new waves of infections. Beginning this Friday, for example, Chicago Mayor Lori Lightfoot has prohibited bars without food service from serving alcohol indoors, among other measures meant to limit the spread of COVID-19.
Vacancy in the Chicago retail sector will likely only rise as struggling storefronts go out of business and new product comes to market. There were 34 new retail properties delivered during the second quarter. Another 52 buildings, totaling 1,157,265 square feet, are under construction across the metro.
Among the largest properties to sell this quarter, Agree Realty acquired a 200,000-square-foot Walmart Supercenter from Seritage Growth Properties in south suburban Homewood, Illinois. The property traded for $10,084,000, or $50.14 per square foot.
As a proof of concept for the further retailization of healthcare, the largest retail lease this quarter was Blue Cross Blue Shield’s 123,756-square-foot deal in the Morgan Park neighborhood. The insurance giant is opening a multipurpose solution center in a recently shuttered Target at 119th Street and Marshfield Avenue, located in DL3 Realty’s Marshfield Plaza. Though there will be a community health outreach component, some of the retail space will be converted into employee offices.
Chicago is far from alone in its retail struggles. Around the country, retailers shed more than 15 million square feet of space, accounting for 23.7 million square feet of negative net absorption in the second quarter. The quarter’s approximately $10 billion in acquisition volume was the lowest since 2013—signaling that investors are content to wait and see how the sector responds to the COVID-19 crisis.
With foot traffic stalling to nearly non-existent levels due to lockdown measures, many merchants have explored bankruptcy protection. Recent examples include GNC, 24 Hour Fitness, Brooks Brothers, J.C. Penney, Neiman Marcus and J. Crew. Other retailers—such as Bed, Bath & Beyond, The Gap, Victoria’s Secret and Zara—have announced plans to close storefronts and focus on e-commerce.