Vacancy rates in the Chicagoland area have increased slightly from 7.89% at the end of last year to 7.93% at the end of the first quarter of 2008, according to a market report from CB Richard Ellis. Comparing to a year ago, the increase was nearly a half percent from 7.52%. Although vacancy rates are up, they are "still very much in check" and are still below 10%, says Todd Caruso, CB Richard Ellis retail managing director for the Eastern US.
Lease rates have slightly increased. The average asking gross lease rates increased from $23.39 at the end of last year and $22.93 a year ago, to $23.44 for the first quarter of 2008, according to the report. Both vacancy rates and lease rates are expected to continue to inch up.
Retail construction was high last year, with an increase in the first quarter of this year. There was an estimated 8.4-million sf of new shopping center space constructed and delivered in 2007 compared to an annual average of nearly five-million sf of new space from 1983 through 2006, according to a report from Mid-America Real Estate. "I would say that 2008 is still considered active by historic standards," says Jeff Kuchman, principal and director of tenant brokerage with Mid-America. In 2008, the newly opened Interstate 355 extension is likely to be a catalyst for retail development at the interchanges, according to Mid-America's report. "There have been major projects planned along I-355 for several years," Kuchman says. "I think, however, you will see some pretty significant pull back in whether or not some of those projects actually open."
The construction activity is likely to subside, with all of the projects on the drawing board not likely to be completed. But, that also does not mean that retailers are crawling off to hide. "For the most part, retailers continue to open stores. It is just that they are pulling back on the number of new stores that they are expanding and opening," Caruso says. Retail center owners need to "be creative and have a back-up strategy," he says. Owners should seek out non-typical tenants such as government, education and healthcare, Caruso says.
Kuchman notes that retailers are currently taking "a step back and curtailing some of the massive growth plans, and really assess whether they want to be in the far outlying regions and growth markets in anticipation of residential catching up." Kuchman agrees with the sentiment noting that there is significant pent up demand.
While there is an air of caution in the marketplace, there is definitely not a need for panic, Caruso says. "The fundamentals are still very strong," he says. "Obviously, we are all watching this very closely." And, while the credit crisis has caused problems for the retail market, the rising cost of energy has caused more of an effect, Caruso says. "The energy issue has become so much more visible and has affected us more," he says. Retail "is such a dynamic industry" that it will adapt, Caruso says.
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