CRE N Illinois

Retail industry steadily on the rise

Chuck Taylor, director of operations for Lemont, Ill.-based Englewood Construction Management, is excited about the retail market in and around Chicago.

 

Chuck Taylor, director of operations for Lemont, Ill.-based Englewood Construction Management, is excited about the retail market in and around Chicago. In a phone interview with Illinois Real Estate Journal, Taylor said that business is on the rise at Englewood Construction and across the Chicago area.

Fresh off the International Council of Shopping Centers’ big convention in Las Vegas, Taylor says the biggest thing that he learned while networking with his peers is that retail is back.

“The developers are telling us that there’s a lot of money out there for new developments. As long as the deal makes sense, there’s money for these developers to develop or value-add to their existing centers. There’s also a lot of interest from the commercial tenants to expand due to location, as well as re-configuring. So there’s a lot of great activity.”

That activity includes restaurant projects, franchise activity, and national chains and retailers re-branding, refreshing and looking to add new locations. Taylor says that the developers are either adding spaces to their centers or reconfiguring existing spaces.

“If a major anchor tenant decides to close, like a JC Penney or Sears for example, that space has to be configured to accept new tenants,” Taylor said. “In a lot of cases, the spaces have to be cut up for smaller tenants that are active. There’s a lot of that activity going on, and our developers are asking us to help them reconfigure existing spaces.” The good news is that there are tenants to fill those spots. That’s a change from the recent past, when, Taylor said, owners were stuck with vacant space.

“We saw a wave when Circuit City closed up all of its stores. Those landlords were really struggling to fill that void, and we saw retailers like h.h. gregg fill the gap. Although it was tougher for them to find new tenants to take that existing space, now we’re being told it’s not so bad to find tenants that are looking to get into good centers.”

A trend Taylor has recently seen in Chicago is that there have not been any major shopping center developments outside of the exception of last year’s opening of the Rosemont outlet mall, Fashion Outlets of Chicago.

“That was a pretty significant addition to the area. Now there’s an outlet center looking to build in Country Club Hills,” he said. “They’ve got a big monument sign up and they’re actively marketing that center, although I’m not exactly sure where they are with tenants. There’s a lot of activity taking place in the Clybourn/Halsted corridor, reconfiguring space there. The premium outlet mall in Aurora is planning to make an addition to that shopping center. So while it’s an outlet, it’s still a good sign to see there’s so much activity going on that they have to add a significant amount of space.”

Currently, there are several national chains and retailers re-branding, refreshing and looking to add new locations. Taylor said that some in Chicago are looking to do the same.

“If a Kmart closes, for example, they’ll go to other big-box brands that are looking for smaller footprints,” Taylor said. “I know Pet Smart is one of those tenants that are looking for smaller footprint stores than they’ve done in the past. Also, from what we hear, Best Buy is looking to downsize some of its stores. Yet while they’re looking to downsize, they’re active, so that’s great activity. They’re also creating other opportunities for the tenants to take on those spaces.”

Taylor added that retail rents are rising because landlords are back in a position of power.

“In 2009-2010, it was more of a tenants’ market, and we certainly hear that it’s shifting back to the landlords taking control so that they are able to ask for larger rents,” Taylor said. “Now in all real estate, location is key. So certainly rents in major areas where tenants want to go are going to significantly rise. The rents on Michigan Avenue, for example, have been steadily increasing as space is taken up. The suburbs seem to be following that trend as well, just certainly not as quickly as in a downtown location.”

Taylor says the shift of power from the tenants to the landlords is taking place because the economy is improving.

“You have more tenants that are looking for space and it simply comes down to supply and demand,” he said. “Tenants were able to take advantage of the downturn and reposition themselves in shopping centers for a better location or maybe just rent negotiation. If I have three tenants looking at one space, I can charge more money for it. Whoever is most interested gets it.”

Co-tenacy plays a big role, too,Taylor said.

“If you have a center that has key tenants in it like Apple, for example, that generate a huge customer experience, other retailers and restaurants want to be near that traffic,” Taylor said. “A lot of times, landlords will make concessions to a key tenant that they know generates traffic just to get them in so that they can potentially charge more rent for other tenants that want to move in near them.”