Retail vacancies down, rents up in West Loop and Chicago suburbs: report

The Chicago area’s retail vacancy rate will fall to 6.2 percent this year, according to Marcus & Millichap

Shoppers on the Magnificent Mile
Shoppers on the Magnificent Mile

The Chicago-area retail vacancy rate has fallen for the second consecutive year, driven by growing leasing activity in the suburbs and in the city’s West Loop and River West neighborhoods.

The region’s vacancy rate is on pace to fall from 6.6 percent last year to 6.2 percent for the duration of 2018, according to a report from Marcus & Millichap. The report also noted a 3.4 percent jump in the average asking rent for retail spaces across the metro area, which is poised to hit $17.60 this year.

“The takeaway here is that things are looking pretty good” for Chicago-area retail, according to Sean Sharko, a Chicago-based senior vice president with Marcus & Millichap. Sharko noted the roughly 2 million square feet of new retail space expected to have come online in the area by year’s end, compared to 2.3 million in 2017.

“We’re seeing new construction being held in check,” Sharko said. “That will allow for some of these new shopping centers to slowly and consistently get filled up, and move rents in the right direction.”

Retail vacancies nudged up inside Chicago during the 12-month period ending on June 30, reaching 4.7 percent after 59,000 square feet of new space was absorbed into the market. Average retail rents in the city also declined by about 1 percent this year, wiping out a 1-percent increase last year and settling at $25.63 per square foot.

But 3.4 million square feet of retail absorption in the suburbs pushed the suburban vacancy rate down by a half-percentage point to 6.8 percent this year, led by an especially sharp decline in Schaumburg, according to the report. Retail rents in the suburbs average $15.68 per square foot.

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The West Loop and River West posted the sharpest vacancy rate declines out of the 11 Chicago-area submarkets described in the report, hitting 2.8 percent and 4.8 percent, respectively.

Sharko said the hot retail leasing in those neighborhoods “speaks to how much effect millennials are having on the retail landscape,” noting a RentCafe report last month that listed the West Loop as one of the youngest urban neighborhoods in the country.

Young adults “have more of a grab-and-go shopping strategy than baby boomers, and they tend to eat out a lot,” Sharko said. “They shop at service-oriented retailers more than baby boomers, and that goes into why you’re seeing retailers open up so much in these locations.”

Meanwhile, vacancy rates ticked up in the Gold Coast and East Loop submarkets, possibly reverberating from high-profile Magnificent Mile closures like those announced by Forever 21 and Tommy Bahama last month.

The Marcus & Millichap report cuts against the findings of a CBRE report published earlier this year, which showed Chicago-area retail vacancies surge to their highest point since 2010. 

But it aligns with findings published in July by Newmark Knight Frank, which posted the regional retail vacancy rate at 6.4 percent.