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Mid-America Real Estate Report Shows 2nd Year of Decline in Chicagoland Shopping Center Development

OAKBROOK TERRACE, Ill. (Jan. 27, 2010) – For the second consecutive year, new shopping center development in Chicagoland has declined as a result of a sluggish US economy, according to an annual survey by Oakbrook Terrace, Illinois-based Mid-America Real Estate Corporation.

The Mid-America 2009-10 Shopping Center Report, released this month, shows that delivery of gross leasable area (GLA) for new Chicagoland shopping centers totaled 1.7 million square feet in 2009, which is down 53% from 2008’s 3.7 million square feet. When compared to the record-breaking 8.4 million square feet of new space in 2007, the total GLA for 2009 showed a decline of 79% over the past two years. According to Mid-America Senior Vice President Andy Bulson, author of the survey, this is the steepest drop of new shopping center development since the report began in 1983, and the lowest total GLA for new space recorded since 1984.

“Financing difficulties and lagging retail demand have plagued most of the projects,” says Mr. Bulson. In addition, due to over-expansion of chain stores during previous years, retailers are building on existing networks and absorbing vacant boxes, rather than driving ground-up development. “We are also seeing a lack of new big box retail concepts entering the market.”

REVIEW OF 2009
According to Mr. Bulson, more than half of the total development in 2009 came from self-development by Wal-Mart, Menard’s and Costco, which are expected to continue at this level in coming years. Wal-Mart opened two new supercenters in outlying areas, and Menard’s opened two new stores, one in the City of Chicago and one in the suburbs. Meanwhile, Target, Lowes, and Costco each opened a location. 

However, he says that power center development remained largely on hold in metro Chicago, with Hillside Town Center being the only traditional multiple anchor power center opening in 2009. In addition, two mixed-use urban projects, Block 37 and Roosevelt Collection, partially opened in 2009, and will continue to move forward.

In the suburbs, inactivity for new shopping centers has been especially pronounced. And, as in the city, most ground up power center development that was scheduled to open in 2009 has been stalled.

LOOKING AHEAD TO 2010
With only 1.7 million square feet of new GLA expected to open in 2010, this year could rival 2009 as the lowest year of new shopping center growth since 1984. No traditional multiple anchor power centers are expected to open in 2010. However, both national discounters and grocers will continue to be the leading categories in developing new space. Costco will open two new strategic locations that have been in the works for several years; one in Bolingbrook and one in Melrose Park. 

“We hope to see this downturn bottom out in 2010 and pick up marginally in 2011,” Mr. Bulson says. “But that would require that unemployment does not worsen, the housing market continues to stabilize, consumer spending increases, existing vacancy be absorbed, and lending return to the commercial real estate sector.”

If there is a silver lining, it is in the way growth will take place. “This is a really historic time for successful retailers to secure prime locations in high priority markets,” says Mr. Bulson. “If you’ve got a good concept or you’re a rent-sensitive national retailer, it’s a good time to take advantage of the lower rents in the prime locations.” Already, he says, big box category killers are modifying typical deal structures and traditional store formats to take over vacant boxes in densely populated areas and surrounding collar communities – the smaller urban markets they couldn’t get into before.

Mid-America Real Estate Corporation is a member of Mid-America Real Estate Group, a ChainLinks affiliate. Mid-America Real Estate Group, which is celebrating its 25th anniversary year, is a full-service retail real estate organization that has become the Midwest’s leader in retail investment sales. For more information, call (630) 954-7300 or visit www.midamericagrp.com.

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