As the Economy Weakens, the Loop Strengthens
In the face of the worldwide economic downturn, the Chicago Loop market sustained a surprising 1% growth in the occupancy, increasing from 85.08% to 86.26%. This is the highest occupancy rate since 2002, as this market once again displayed its resilience. “We expected pain this year, but this market stunned us by not only holding its own, but actually improving” says John Vance, Vice President of Stone Real Estate and co-author of the 8th annual Loop Retail Survey. The Loop market did not feel the effects of the financial duress until the 4th Quarter, as some retailers in secondary locations vacated early. The obvious question is how Loop retail will perform in 2009.
The market performed with an almost subtle strength this year. Significant leases were announced at 108 N. State (formerly Block 37), as Anthopologie and Puma signed on to their first Loop stores and Ben Sherman inked its first deal in the Chicago market. Banks maintained their expansion pace with seven leases, five of them being prime corner locations. The Loop said goodbye to Coach, Office Max and LaSalle Bank, as Bank of America completed its rebranding. New concepts in the market included Flat Top Grill, Halo Salon for Men, Freshii and The University of Notre Dame. The headline grabbing story this year is the plummeting vacancy rate of Michigan Avenue, as this submarket continued its transformation to a 24/7 trade area.
The following examination of the market’s three trade areas demonstrates the performance of each and the lead role the Michigan Avenue Corridor played in supporting the vibrancy of the Loop.
Michigan Avenue Corridor
Bounded by the Chicago River to the North, Congress Parkway to the South, Lake Michigan to the East and the east side of Wabash Street to the West
Achieving its lowest vacancy rate in the history of this survey, dropping from 23.51% in 2007 to 16.71% in 2008, the trade area continues to benefit from the mixed customer base; affluent residents, tourists and downtown office workers. Reported successes from the restaurants—white table cloth to fast casual and national to local operators—have shown that this is now a proven trade area for food service. Residential real estate experts expect a persistent struggle for the residential condominium market, but we expect continued leasing momentum at the Lake Shore East Development. Retailers across all categories continue to tour Michigan Avenue south of the Chicago River, although the economic downturn will temper demand in 2009.
Central Business District
Bounded by the Chicago River to the North, Congress Parkway to the South, the west side of Wabash Street to the East and the east side of Clark Street to the West
The successes and setbacks of 108 North State and the Sullivan Center (former Carson Pirie Scott) have attracted plenty of media attention. The District’s vacancy rate increased to 14.83% from 13.62% the previous year. We see the opening of 108 North State, the success of the street level CBS2 Chicago News Studio and the completion of the Wit Hotel at Lake & State Street as key improvements for the resurgence of the State Street area and continued strength of this market.
LaSalle / Wacker Corridor
Bounded by the Chicago River to the North, Congress Parkway to the South, the west side of Clark Street to the East and the Chicago River to the West
As the consistent stalwart of the overall market, this trade area’s vacancy increased slightly from 9.44% to 10.07%. The continued vacancy at 201 N. Wells, the redevelopment of the retail space at 208 S. LaSalle, the closing of three bank locations and the increase of supply from 155 N. Wacker led to the vacancy rate hiccup. We view the establishment of the JW Marriot Hotel at 208 S. LaSalle and the influx of more office density from 155 N. Wacker as long-term positives for the market. The merger of the Chicago Mercantile Exchange with CBOT, and resultant loss of that customer base on Wacker Drive caused ripples in the market, but the new presence of BP employees in the former trading floors at 10 & 30 S. Wacker should restore the high office population density along the Corridor in 2009.
As in past years, we added the West Loop trade area as an addendum to our survey as office development and leasing continues and retail follows.
Bounded by the Chicago River on the East, 1-90/94 on the West, the south side of Lake Street on the North and Congress Parkway on the South
An increase in supply and a vacated large space were the culprits behind this submarket’s vacancy jump from 25.21% to 29.06%. The retail spaces along Riverside Plaza and Canal Street continue to be in demand as new retailers acknowledge the high office densities just west of the River and the success of the retailers within this corridor. The area west of Canal maintains its choppy progression, but James Vender of Stone Real Estate and co-author of the study, notes a burgeoning critical mass of retail around Jefferson and Randolph. “The addition of Maria Pinto, Michelle Obama’s designer, and Province, Chef Randy Zweiban’s Spanish-inspired restaurant, has added to the trade area’s energy” says Vender. Additionally, Just Grapes, Primitive and Assemblage contribute to the unique retail mosaic in the area originally created by Avec, Blackbird and Sepia.