The discussion began with a review of the Chicago retail sector as a whole. All panelists agreed that little has changed throughout the past 12 months: Barriers to entry continue, land prices are high, and the tremendous amount of capital continues to put pressure on the market. "It's a good market for national developers," Kirsch said. "National tenants will pay more in rent, but if you're local, you're getting killed because you can't afford the hefty rents."
Tucker said that while national food chains continue to have an impact on the smaller grocers, Chicago's top two grocery retailers, Dominick's and Jewel, continue to drive the region. "Most other markets have a half dozen viable players," Tucker said. "Local retailers do well here and I think that's because national grocers, like Albertson's for example, lose sight of who their customer is."
Most active in Chicago's retail sector, said Kirsch, are banks, with Bank of America making the biggest push into the market. He said there is also a flocking of smaller health clubs and sandwich shops coming online, as well as mini spas with storefront uses offering Botox services.
In large part, agreed all panelists, shoppers have become bored with the typical cookie-cutter regional mall, making way for smaller boutique stores, big-box retailers and lifestyle centers. Tucker, who defines a lifestyle center as a "PF Chang's, a fountain, and a clock tower," says the term has been vastly overused. However, he says, the formulation of the town-center experience derived from the shopper's need for new options. "They were created because the shopper is bored," he says.
For this reason, mall development has substantially slowed, and recent renovations have offered new alternatives for mall owners. "Watch for malls to change," Kirsch says. "Land prices have gotten so high that they need to build vertical to make any money. Mall developers would be well served by adding a mixed-use component to their property."
Near the conclusion of the luncheon, an audience member asked panel members to comment on the status of the famed Block 37 development. Following the announcement of the project's anchor tenant, WBBM-TV/CBS 2, master developer Mills Corp. announced several new leases for 108 N. State St. including Boggi Milano, Sisley, Andrew's Ties, Banana Republic, Rosa Mexicano, Steve Lombardo, Steven Foster, and David Barton Gym.
"The sheer number of people that live and work in that area shows that the area is dramatically underserved right now," said Tucker, who owns an adjacent property to the site. "And we're seeing even more residential go up in that area."
"They will be very selective so they can create a unique place," Kirsch added. "It will go slow for a while until rents are 40% higher than what you can find on the street."
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