Retail Developers Halt New Plans in Slowdown

CHICAGO-Following a spike in retail vacancy and a lessening in tenant demand, local analysts expect occupancy and demand to sharply decline further into Q4 and 2009. A Marcus & Millichap third quarter market report predicts occupancy rates will continue to fall to around 90% in the Chicago metro area, as about 7.5 million sf of retail space will be added to the market in the near future. The report says the increase, coming from new developments completing, will add about 2% of inventory onto a market already oversaturated by some accounts with product.

Andy Hochberg, founder and managing principal with Chicago-based Next Realty, says he foresaw the decline in demand about a year ago, causing the company to reduce emphasis on new developments of larger shopping centers and other spaces. “I felt there was too much supply in general, and mostly of larger format stores,” Hochberg says. “I’m comfortable now that we don’t have those commitments.”

The company has continued focusing on retail development of 7 acres or less, which Hochberg says offer more manageable spaces. Next has recently redeveloped Roosevelt Plaza, a 125,000-sf shopping center in Lombard, originally built in the 1960s, which is about 91% occupied with asking lease rates for the remaining 11,000 sf around $11 per sf net. The company is also nearing completion on development of a 30,000-sf center in Volo, about 92% occupied with lease rates around $24 per sf net. “We’re continuing with that because in the smaller centers, you’re not as dependent on anchor tenants,” Hochberg says.