No End in Sight For Stagnant Chicago Retail Market

The stagnant Chicago retail market continues to linger near Great Recession highs in vacancy. Rents also remained weak, showing only a slight increase through the first quarter of 2012. Despite the weak outlook, developers still plan to add space to the 101.8 million square foot Chicago retail market.

Vacancy Rate Remains High

Reis reports a first quarter 2012 community neighborhood center vacancy rate of 11.8% for the Windy City retail market, unchanged from the prior quarter, down only 10 basis points from the cyclical high and up 20 from a year earlier. The rate has been fluctuating in that range since peaking at 11.9% in the second quarter of 2011. The local rate had been in single digits from 1991 to 2007.

The power center vacancy rate is 6.8% according to Reis, up 10 basis points from the prior quarter but down 70 from a year earlier. The U.S. average rate is lower at 6.4%, though the Midwest average rate is higher at 7.4%.

More Space to Come

Community neighborhood shopping center net absorption remained modestly positive in the first quarter at 92,000 square feet, following the plus 168,000 recorded the quarter before. Net absorption had totaled minus 2.2 million square feet in three years from 2008 to 2010, but finished 2011 at plus 133,000 square feet. Reis predicts 438,000 square feet of positive net absorption for all of 2012, with about double that level in 2013 and around 1.2 million square feet the following two years.

While community-neighborhood center construction has slowed, some new space has continued to come on line, stalling the decrease in vacancy. With a modest recovery underway, however, three power center projects with over 900,000 square feet are expected to wrap up in the next 12 months.

Rents edge up

Community neighborhood center rents have stopped falling, but they are barely rising. Both the average asking rent and the average effective rent edged up 0.1% in the first quarter of 2012, to $19.08 psf and $16.78 psf, respectively. The prior quarter’s increase had been just 0.2% by both measures, and including two losing quarters prior, the year-over-year losses are 0.6% asking and 0.5% effective. Effective rents had fallen each year from 2008 to 2012, but a cumulative total of 5.6%. Power center asking rents are showing continued weakness.

Reis predicts rent increases of around 1.0% for all of 2012, followed by gains of 1.4% asking and 1.9% effective in 2013. Rent increases are expected to improve slowly year-by-year until increases of 3.1% asking and 3.7% effective in 2016. The effective average is forecast to reach a new high some time in 2015.

Photo: Willowbrook  Town Center (photo: Flickr/willowbrookhotels)