Retail sales in the U.S. rose 0.3% month-over-month in May of 2023, following a 0.4% increase in April, and beating forecasts of a 0.1% decline, based on a report by Trading Economics—and Chicago’s numbers reflect a similar pattern. Despite scattered headlines of doom and gloom, retail leasing is picking up, both in the suburbs and the city.
To gain further insight into the current state of the market, Illinois Real Estate Journal recently spoke with Mid-America Real Estate Principal/Vice President Marget Graham and Principal/Senior Vice President Lara Keene.
First, the suburban retail market is undergoing notable changes, reflecting broader trends in the United States. Specifically, Mid-America Real Estate noted a shift towards mixed-use and repurposing existing retail spaces.
To accommodate current retail demands, non-functional retail spaces in suburban malls, like larger anchor spaces and multi-level spaces, are being transformed into mixed-use, with residential, hospitality, medical and entertainment components being introduced.
Yet it’s open-air centers that Mid-America seems to place the most faith, particularly those with convenient access, ample parking and high foot traffic. Marget Graham said, “We’re seeing a true reemergence of trends that were happening pre-pandemic with mall tenant expansion geared toward open-air opportunities for convenient access, parking and therefore more activity.” Lifestyle centers, too, are diversifying their offerings with grocery stores, fitness centers, coffee shops, quick- and full-service restaurants and entertainment options.
The current vacancy rate for suburban retail is 11.3%, an improvement from the peak of 14.6% during the pandemic. This is good news, and while the sector still has a way to go, Graham said the market has seen absorption and anticipates a further decline, indicating a healthier market with high demand for well-positioned spaces.
“We hoped to reflect less than 10% vacancy rate by year-end last year,” Graham said, “but we predict we’ll reach that number within the next 18 months.”
This recovery can be attributed to several factors. Many retailers that survived the challenges of the pandemic are now in expansion mode, driving demand for retail spaces. The limited new construction in recent years has also contributed to the focus on redeveloping existing vacant spaces to accommodate growth.
Graham said the most successful businesses include grocery stores, off-price retailers, sporting goods stores, home furnishings retailers, entertainment venues, medical facilities, dollar stores and fitness centers. And what they have in common? These companies have employed various strategies to attract and retain customers, like curbside pickup, online ordering with in-store pickup options and technology enhancements. Experiential retail has also played a crucial role in drawing customers in by offering unique and engaging experiences.
Top performing suburban markets include Oak Brook, Schaumburg, Old Orchard in Skokie, Naperville and Orland Park, all witnessing significant activity due to their concentration of retail, as well as their population and density.
As for Downtown Chicago, just because it’s been a bit slower to bounce back doesn’t mean there isn’t measurable progress. While certain areas still face challenges, the outlook is promising. According to Lara Keene, the city’s retail scene demonstrates resilience, with neighborhoods experiencing unprecedented growth.
Of course, different trade areas face distinct circumstances, with some flourishing and others facing challenges based on population density and location. Retail businesses, whether service-oriented, food and beverage, or traditional soft goods, gravitate toward areas where people congregate. And in Chicago, Keene said this has been in the neighborhoods, like Lincoln Park, rather than the CBD.
That’s not to say all of downtown is lagging. Fulton Market stands out as an emerging retail hub and dynamic neighborhood that fuels growth. Several factors contribute to its success, including a substantial office density. Moreover, Fulton Market’s appeal is bolstered by its vibrant food and beverage scene, bustling tourism and numerous multifamily buildings, all of which contribute to a dynamic “live-work-play” environment. Mid-America said the integration of retail and multifamily is increasingly significant in today’s market, as people crave convenience and accessibility.
“The demand for mixed-use developments that combine retail and residential spaces is growing,” Keene said. “It’s an exciting time for the retail industry as it adapts to meet the needs of modern urban dwellers.”
The Gold Coast has also experienced noteworthy lease activity, primarily propelled by luxury retailer performance.
Yet we can’t discuss the current retail market without acknowledging the seemingly mass exodus of big retailers like Gap, Banana Republic and Verizon Wireless from Michigan Avenue. AT&T is the latest in a line of stores to pull out, as more and more stores seem to be closing their doors. ABC7 reported that 25% of its store lots are vacant right now, similar to the 28% of vacant storefronts in the Loop—all due to a shift in consumer shopping habits, and companies like AT&T are having to shift their strategy to account for what works best for it and its customers.
Magnificent Mile Association President Kimberly Bares said in a statement to ABC7: “Retail trends are changing. While we don’t like to hear about any of our corporations leaving, we have great enthusiasm and optimism about the future of the Mag Mile.”
Mid-America shares the same sentiment. Contrary to external perceptions, Keene said Michigan Avenue ranks as the leading high street nationwide, in terms of annual foot traffic. “It’s North Michigan Avenue in particular, and we’ve seen significant spikes in traffic on weekends at a magnitude higher than other markets in the U.S.”
In line with ABC7’s report, Keene agreed that the observed closures on Michigan Avenue are simply resizing their stores to align with evolving consumer demands, adopting smaller and more efficient store layouts to optimizing operations and prioritize profitability.
As for the most successful retail categories, Keene said health and wellness businesses have thrived in recent months, and the expansion of med spas is evidence. Additionally, the rise of social retailers, including small-format fitness studios and beauty and spa establishments, has gained significant momentum. Numerous tenants like FACE FOUNDRIÉ, Laser Away and OVME, have expanded their footprint across various urban neighborhoods in Chicago.
