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10 Ways to Ensure the Long-Term Health of Michigan Avenue

Originally published in the REJournals Chicago Retail Space Guide (Spring 2022 Edition)

Chicago’s Michigan Avenue retail corridor has no choice but to reimagine itself. Retail vacancy is the highest it has been in decades, many companies are adjusting to remote and hybrid work schedules, and crime has threatened what was once the truly “Magnificent” Mile, all exacerbated by the coronavirus pandemic. Now more than ever, the question is, “How do we resurrect this world-class retail district?”

Address Crime and Safety; Improve Perception of City
“Without a more concerted effort to reduce actual crime and the perception of it, any revitalization strategies are not likely to have a significant impact,” says a 2021 Urban Land Institute Technical Assistance Panel Report.Chicago is the number two city affected by Organized Retail Crime. Despite an increased police presence from the City of Chicago and retailers ramping up security measures, Organized Retail Crime has increased by 60% in the last five years and cost Illinois retailers $4 billion in losses in 2020, according to CPD Data and the National Retail Federation. In a 2021 National Retail Security Survey, 78% of respondents feel a federal Organized Retail Crime law is necessary to combat such theft and ensure public safety, ultimately creating a more positive shopping experience for customers.

Return to Downtown Chicago Offices
In 2020, the number of people working from home nearly doubled to 42% of America's workforce, according to the Bureau of Labor Statistics. Today, office occupancy in large U.S. cities like Chicago is still approximately one-third of pre-pandemic levels, impacting the heavily relied upon economic activity from commuting, morning coffees, team lunches, and after work happy hours. A return to downtown Chicago offices and its associated spending is essential to revitalizing Michigan Avenue.

Restore Leisure Travel: Domestic & International
“The 8 states closest to Illinois typically account for 70% of leisure travel to the city,” says former Choose Chicago CEO, David Whitaker. According to the U.S. Travel Association, domestic travel spending dropped from $972 billion in 2019 to $642 billion in 2020, and international travel spending dropped from $233 billion in 2019 to $83 billion in 2020. Michigan Avenue needs the rebound of domestic and international travel to fully rebuild.

Restore Business Travel: Trade Shows and Conventions
“The economic engine of Chicago’s tourism industry, McCormick Place was hard-hit by the pandemic, with more than 230 event cancellations costing the city about 3.4 million attendees and nearly $3.1 billion in economic impact. McCormick Place has 176 events on the calendar this year and projects nearly $1.9 billion in economic impact for the city,” according to the Chicago Tribune. The return of the trade show and convention traffic in Chicago is key to restoring Michigan Avenue’s retail, restaurant, and hotel business.

Rebuild the Hotel Industry
The average occupancy rate for downtown Chicago hotels was 74% in 2019, 27% in 2020, and 43% in 2021, according to Statista, with trade show and convention attendees typically accounting for 20% of bookings, says city tourism arm Choose Chicago. To rebuild the hotel industry, we first need to restore leisure and business travel.

Integrate More Food & Beverage into Struggling Vertical Malls
Retail sales increase as much as 25% at malls with quality food and beverage options, and shoppers eating at the mall spend more than 15% more each trip, says JLL. With major Michigan Avenue malls Water Tower Place and The Shops at North Bridge faced with large vacancies, integrating high-end dining options may be part of the solution.  

Respond to Tenant Demand, Part 1: Demise Multi-Level Flagships to Deliver Small Shop Ground Floor Opportunities
Well before the pandemic, Best Buy, Gap, Topshop, and Macy’s flagship Michigan Avenue closures were planned. Not only are these brands older and less relevant, but they were also situated in oversized flagship spaces. Simultaneously, many retailers were already reevaluating their real estate footprints and overall brick-and-mortar strategy, ultimately preparing to shutter underperforming stores, downsize existing stores, and open new smaller format locations.

To start chipping away at these large multi-level flagships along the Mile, Michigan Avenue landlords must respond to tenant demand for small shop ground floor space.

Respond to Tenant Demand, Part 2: Target Large Experiential Retail Concepts for Upper Floors
Part two of the above recommended approach is solving for the upper floors. Given a lack of street presence/walk-by traffic and the sheer size of the floor plates, upper floors can be challenging for traditional retailers to make sense of. Targeting more destination-oriented concepts is the logical answer, like experiential retail concepts that are ticketed experiences, and sought out by customers ahead of time, eliminating the need for a prominent ground floor presence along Michigan Avenue. Many also have larger square footage requirements. Furthermore, with the highest value budgeted for Michigan Avenue fronting ground floor space, retailers can benefit from a more tenant friendly economic deal on upper floors or being right off the Avenue.

For example, the Museum of Ice Cream recently signed a long-term deal for 13,500 SF on the backend of the Tribune Tower redevelopment at 435 N. Michigan Avenue, with no frontage along Michigan Avenue. The concept will still benefit from being situated within the Michigan Avenue retail corridor, but on more agreeable terms.

 Capitalize on the Booming Luxury Industry
While many retail segments are struggling with the post-pandemic world, the opposite is true for the luxury industry. “The market for personal luxury goods – the core of the core of luxury segments and the focus of this analysis – has come roaring back, experiencing a V-shaped recovery in 2021. After a sharp contraction in 2020, personal luxury goods sales are set to beat their pre-Covid record, with the market forecast to grow by 29% at current exchange rates to hit $283 billion, likely finishing the year (2021) up 1% from its 2019 record,” according to Bain & Company.

From a category level, personal luxury goods including accessories and jewelry grew by 8% and 7% over 2019, respectively, and watches rebounded to their 2019 valuation of $40 billion. At the same time, growth in the secondhand luxury market soared to $33 billion in 2021.

There has been a direct correlation to the success of the luxury industry along Michigan Avenue, with some of the most recent deals completed in the trade area falling within the above referenced categories. Luxury consignment shop The Real Real opened in 12,000 SF at 940 N. Michigan Avenue, bags/leather goods, accessories, and jewelry fashion house Louis Vuitton completed an expansion at 919 N. Michigan Avenue, and Swiss watchmakers, Brietling and Rolex, opened at 919 N. Michigan Avenue and 701 N. Michigan Avenue.

Landlords and their leasing representation can capitalize on the booming luxury industry and the above merchandising mix established on the northern end of the trade area to attract like brands.

Favorable/Creative Lease Structures
The Michigan Avenue retail corridor and its rental rates peaked in 2016 with Sephora and Ulta Beauty signing flagship deals on the street. Over the past six years, overall tenant demand on the Avenue has plummeted, and for the small pool of tenants with Michigan Avenue requirements, landlords have been hesitant to lock in economics below their underwriting, and what they perceive as below market. From a tenant perspective, they’re aware of the lack of demand on the street, and this is further worsened by the amount of vacancy seen when they tour the Avenue. There is a disconnect between tenant and landlord market expectations, and a middle ground needs to be established to move the corridor in the right direction. With tenants having more leverage than ever, landlords accommodating favorable/creative lease structures are vital to bringing Michigan Avenue back.

“Michigan Avenue has history, beauty and prestige. It long has been the great showcase of the Midwest. Chicago cannot let it forfeit that crown,” says a recent Chicago Tribune editorial. Restoring the history, beauty and prestige of the once Magnificent Mile and ultimately ensuring the long-term health of the retail corridor requires a collaborative approach between the city, major employers, the hospitality industry, tenants and landlords. One step at a time, starting with addressing crime and improving the perception of the city, we can again reimagine the heart of Chicago, North Michigan Avenue.

Kelly Nickele is a Senior Associate at Mid-America Real Estate Corporation under the leadership of Greg Bayer and Lara Keene. Kelly specializes in Urban Product Leasing and Tenant Representation. Having grown up in downtown Chicago, Kelly has a deep understanding of the urban retail landscape and the intricacies of each market and its consumers. She has a vast knowledge of the beauty/cosmetics, home, and fashion industries including luxury, contemporary, and digitally native brands emerging into brick-and-mortar. Kelly is a licensed broker in the state of Illinois and a member of the International Council of Shopping Centers, Women in Retail Leasing, and Chainlinks National Affiliation of Retail Brokers. ] Web Design
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