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Grocery Continues to Drive New Shopping Center Development in Suburbs

Power centers, mixed-users limited to city of Chicago in 2015

OAKBROOK TERRACE, Ill. (January 27, 2015) – Development of shopping centers in Chicagoland looks to hover around 2 million square feet of new retail space per year due to strengthening grocery-driven trends according to Chicagoland 2015 Shopping Center Report by Mid-America Real Estate Corporation.

While there was a 6% increase in shopping center development from 2.26 million square feet in 2013 to 2.40 million square feet in 2014, the 2015 Shopping Center Report anticipates a 14% decrease with approximately 2.06 million square feet planned for the coming year. While new development has grown significantly since 2011 when new retail space hit an all-time low of 1.03 million square feet, new development between 2.00 and 2.50 million square feet per year appears to be the growing trend in Chicagoland.

The grocery-focus of new development planned for 2015 and a shifting retail scene combine to influence this trend of fewer square feet developed per year. Andy Bulson, Mid-America principal/director of suburban tenant representation and author of the Shopping Center Report, reports that this is due in part to the lack of new power centers planned in the suburbs in 2015.

“Large anchor retailers like Kohl’s and Target have largely completed their Chicago expansions, while a multitude of grocers are still working to absorb the market share vacated by Dominick’s,” says Bulson.

GROCERY CONTINUES TO DRIVE NEW DEVELOPMENT

As in previous years, grocery continues to drive development activity. 12 of the 15 developed centers in 2014 were grocery-anchored, and 9 of the 11 planned centers in 2015 will be grocery-anchored, as well. This trend is due in part to the loss of Dominick’s and the continuing process of dividing up the market share.

Like 2013, Walmart and Mariano’s continue to lead the grocery development in Chicagoland with 564,000 square feet and 483,000 square feet developed in 2014 respectively. Looking forward to 2015, Mariano’s plans to develop an additional 525,000 square feet with Walmart close behind at 390,000 square feet planned.

LOCAL AND SELF-DEVELOPMENT OVERWHELMINGLY PREFERRED

Self-development by major retailers continued to be a common trend in 2014 and is expected to continue into 2015. 5 of the 15 centers developed in 2014 and 3 of the 11 planned for 2015 will be self-developed, with the most common retailer being Walmart.

Local development will continue to emerge in both the city of Chicago and surrounding suburbs in 2015. While just 6 of the 15 new centers developed were by local developers in 2014, 7 of the 11 planned for 2015 will be by local developers.

Bulson attributes the shifting development scene to a lack of local knowledge of and experience by the larger national developers.

“The local developers know where the opportunities are in Chicagoland, where there is a need for retail, and which markets are growing. The involvement of larger developers or REITs is typically related to the financing of the projects,” said Bulson.

CHICAGO SUBURBS STRICTLY GROCERY

In 2014, the only non-grocery-anchored center developed in the suburbs of Chicago was Regency Center’s Shops on Main at Route 41 and Main in Schererville, Ind. Looking forward to 2015, every planned center in the suburbs will be grocery-anchored. The only multi-user, power centers that are expected to be developed in 2015 are New City at Halsted and Clybourn and the IBT development at 43rd and Pulaski, both in the city of Chicago.

This also continues a trend originally pointed out in the 2014 Shopping Center Report. The majority of planned development continues to be in the suburbs of Chicago. While 9 of the 15 centers developed in 2014 were in the suburbs, 9 of the expected 11 centers will be in the suburbs in 2015.

 “There is strong demand for new power center development in the city of Chicago but there are significant barriers to entry,” said Bulson.

POWER CENTERS A THING OF THE PAST

Overwhelmingly, developers are focusing on smaller strip centers as opposed to the traditional power center. Only 2 power centers were developed in 2014 and just 2 additional are planned for 2015.

“We are seeing big box self-development by the likes of Walmart while local developers are creating opportunities to accommodate grocers such as Mariano’s. However, in both cases a true power center is usually not created,” said Bulson.

LOOKING AHEAD TO 2015

  • Shopping center development will continue to hover around 2 million square feet per year.
  • An increase in Chicago-based developers as local knowledge and experience of the market become progressively more important.
  • Grocery-anchored projects will drive all development planned in the suburbs in 2015.
  • Development of new power centers will continue to decline unless located in the city of Chicago or densely populated collar communities.

Mid-America Real Estate Corporation is a member of Mid-America Real Estate Group, a ChainLinks affiliate headquartered in Oakbrook Terrace, Ill. The company is the Midwest’s leading full-service retail real estate organization with offices in Chicago, Milwaukee, Minneapolis and Detroit.  For more information, call (630) 954-7300 or visit www.midamericagrp.com.

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