Written by Andy Bulson, Principal/Director of Suburban Tenant Representation
As reported in previous Shopping Center Reports, the Chicagoland average of new development continues to hover around two million square feet of new retail space per year. Gone are the years of five million plus square feet of new retail built for expanding department store and mass merchandisers. Here to stay are grocery-driven projects and smaller footprint urban infill developments according to Chicagoland 2016 Shopping Center Report by Mid-America Real Estate Corporation.
Factoring a 22% decrease in shopping center development from 2.65 million square feet in 2014 to 2.07 million square feet in 2015, the 2016 Shopping Center Report anticipates another 27% decrease with approximately 1.51 million square feet planned for the coming year. However, while new development had been increasing steadily since 2011 when new retail space hit an all-time low of 1.03 million square feet, this incremental drop does not appear to be very significant according to Andy Bulson, Mid-America principal/director of suburban tenant representation and author of the Shopping Center Report.
“No one has stopped doing deals since 2011. The difference in square footage planned for 2016 compared to square footage completed in 2014 and 2015 is just a result of construction timing. People who were doing deals then are still doing deals now,” detailed Bulson.
Although the size of the projects has contracted, the number of new developments and expansions has remained steady over the past three years. With 15 new developments in 2014 and 12 in 2015, the anticipated 14 projects in 2016 is right on par. However, with an ever-changing retailer landscape, the size and scale of projects are being cut back.
Gourmet Grocery Leads New Development
The continued grocery focus of new development planned for 2016 and a shifting retail scene combine to influence this trend of fewer square feet developed per year. Nine of the 13 developed centers in 2015 were grocery-anchored, and nine of the 14 planned centers in 2016 will be grocery-anchored, as well.
“We will hopefully continue to always have one big New City-like project every year. However, even New City is grocery-anchored. It’s an urban presentation of a suburban center after all,” said Bulson.
Mariano’s continued to lead the grocery development in Chicagoland in 2015 with six new centers completed for a total of 815,000 square feet. The gourmet grocer does not look to slow down in 2016 with two more centers planned for 139,300 square feet.
Walmart also sustained its typical and steady growth with two centers opened in 2015 for a total of 390,000 square feet and two more planned in 2016 for a total of 377,000 square feet.
Chicago Suburbs Stick to Grocery
The singular non-grocery-anchored center planned in the suburbs of Chicago for 2016 is Bond Companies’ Kildeer Village Square. Located at the northeast corner of Plum Grove and Rand Road in Kildeer, Ill., the 160,000-square-foot center will be anchored by Nordstrom Rack, DWS and a possible fitness center and is expected to deliver in fall 2016.
“The center is being developed directly adjacent to Bond Companies’ Kildeer Marketplace which is anchored by Whole Foods. With such proximity, one could make the argument that this is essentially an expansion of an existing grocery-anchored center,” said Bulson.
Following the grocery trend, three centers planned for 2016 look to bring grocers to widely considered Grocery Deserts in the south suburbs. Walmart will develop two new stores in Olympia Fields, Ill. and Richton Park, Ill., while Meijer will expand to Flossmoor, Ill.
“Retail in this area of suburban Cook County has long been plagued by extraordinary high real estate taxes, as well as high sales tax,” said Bulson.
Redevelopment of Existing Centers
Another consistent trend is the redevelopment of existing retail centers. From Key Development’s Dunes Plaza anchored by Kohl’s, TJ Maxx, Ulta, PetSmart and Ross in Michigan City, Ind. in 2013/2014 to Hamilton Partners’ Mariano’s-anchored Stony Creek Promenade at 111th and Cicero in Oak Lawn, Ill. in 2014 to, most recently, Inland Real Estate Corporation’s Joliet Commons anchored by Dick’s Sporting Goods and DSW at U.S. Route 30 and Hennepin Drive in Joliet, Ill. in 2015, we are seeing very well-positioned but obsolete retail buildings being torn down and redeveloped.
Looking into 2016, Walmart, as mentioned above, is redeveloping a former Currie Motors auto dealership at U.S. Route 30 and Western Avenue in Olympia Fields, Ill.
“For a 10 year period everyone said, ‘Keep going west!’ But there aren’t any new rooftops to chase anymore, so everyone is looking for old space to redevelop now,” said Bulson.
According to Bulson, Kmart seems to be the most likely source of retail redevelopment in the next five years.
“The retailer is sitting on some of the best retail sites in the market,” Bulson elaborated.
Power Centers a Thing of the Past
Overwhelmingly, new developments are shrinking in size. Although new retail development has fluctuated over the last 10 years, the Shopping Center Report has tracked a 45% decrease in average center size throughout Chicagoland from 2005 to 2015.
“Large anchor tenants like Target, Kohl’s and home improvement retailers aren’t expanding anymore, and so what you have are smaller un-anchored centers. We’re also seeing shadow-anchored projects coming up next to freestanding Walmart, Menard’s and Meijer centers. They’re adding new outlots and bringing in smaller shops,” explained Bulson.
Additionally, development is trending towards the City of Chicago rather than the suburbs. In 2016, eight of the 14 planned developments fall in the city itself.
“Retailers are chasing the low risk deals in densely populated trade areas,” said Bulson.
Looking Ahead to 2016
- Although shopping center development will continue to hover around 2 million square feet per year, timing will dictate fluctuations in typical development for the future.
- Grocery-anchored projects will drive almost all development planned in the suburbs in 2016.
- Development of new power centers will continue to decline unless located in the city of Chicago or densely populated collar communities.
Click here to view 2016 Shopping Center Report PDF Charts
Andy Bulson | Principal/Director of Suburban Tenant Representation
Mid-America Real Estate Corporation
One Parkview Plaza, 9th Floor | Oakbrook Terrace, IL 60181
Direct: 630.954.7376 | Fax: 630.954.7304
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