Retail Market Overview | Q4 2012 Existing Properties Vacancy Absorption Construction Rents Sales
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YEAR-END 2012 | RETAIL YEAR-END 2011 | SUBURBAN OFFICE CHICAGO RETAILCHICAGO MARKET OVERVIEW OFFICE MARKET OVERVIEW Change is on the horizon PainfullyIn the face of Slow a struggling Recovery economy, the Continues Chicago retail market reported VACANCY Thelackluster overall vacancy year-end rate in the Chicago results. suburban office market decreased slightly in 2011, down to 22.3Chicago-area percent from 22.4retail percent vacancy at year-endrates decreased 2010. slightly by 0.2 percent in 2012 to 8.3 percent. Net Theabsorption Lisle-Naperville remained market positive showed inthe the lowest fourth overall quarter, vacancy but rate was of significantlyall the markets, lower ending than 2011 2011at at 873,622 17.1 squarepercent, feet, while bringing the Northwest the year-end market ended total to2011 446,554 with the square highest feet. overall Asking vacancy rents at 26.9 were percent. reduced by $0.46 Theper overall square sublease foot tovacancy $15.65 rate per also square decreased foot, toindicative 1.5 percent, of adown tenant-favorable from 2.1 percent market. at the end of 2010.The Chicago market has undergone significant changes this year with major stores such as Borders and Best Buy closing locations while new retailers such as Mariano’s Fresh Market and Ross Dress MARKET INDICATORS LEASE AND SALE ACTIVITY For Less emerged in the Chicago area. A shift in consumer mentality became evident during the year OverallMARKET Chicago INDICATORS Significant 2011 lease transactions include CVS Caremark’s 266,000-square-foot renewal at in response to the economic instability experienced across the nation. Concerns surrounding the Suburban Office Caremark Towers in Northbrook; ACCO Brands’ 189,000-square-foot lease at Kemper Lakes Business Q4 2011 Q4 2012 Centerfuture in Long economic Grove; andoutlook Sysmex’s have 163,000-square-footresulted in a push forlease quality at 555 merchandise Aptakisic Road at in a Lincolnshire. more economical price. Year-end Year-end 2010 2011 BlackstoneStores Groupthat have LP, the endured world’s andlargest survived private-equity the economic firm, purchased crisis haveDuke begunRealty Corp.’sto transform suburban the way they VACANCY 8.5% 8.3% VACANCY 22.4% 22.3% officeoperate holdings in order in U.S.to appeal cities toincluding customer Chicago, preference Dallas that and not Atlanta only inmust the meetfourth quality quarter. guidelines The but also 79-propertyfinancial purchase expectations included as Riverway, well. Embracing a 858,711-square-foot, E-commerce three is buildinga prime propertyexample in ofRosemont; this adaptation on the RENTS $16.11 $15.65 ABSORPTION 866,345 sf -173,897 sf O’Harepart International of retailers Office who now Center, offer a 516,779-square-foot, consumers price-matching two-building onlineproperty and in Rosemont;brought technology Atrium to their INVENTORY 494,678,173 507,719,111 II, a stores100,952-square-foot for a more interactive property in shoppingArlington Heights; experience. and Executive Other stores Towers such West, as a 653,727-square- Target and Wal-Mart began GROSS ASKING $ 2 0 . 5 4 p s f $20.42 psf RENTS foot,targeting three-building urban asset shoppers, in Downers building Grove. stores in downtown Chicago, marketing produce and other foods 500to Park help Boulevard, off-set the a 450,614-square-foot increased cost of rentalproperty obligations. and One Pierce Place, a 578,737-square-foot INVENTORY 105,886,979 sf 105,605,209 sf property, both in Itasca, were recently purchased both by Long Wharf Real Estate Partners, LLC for $73.8 million ($71.65 per square foot). NetNET Absorption ABSORPTION & Vacancy & VACANCY CHICAGO OVERALL The NorthwestOverall Chicago market Retail also Market witnessed numerous non-traditional sales in 2011, while the Lisle- 10.0% 9,000,000 Naperville market 8,226,220witnessed various user sales. 9.0% 8,000,000 8.8% 8.4% 8.4% 8.4% ABSORPTION8.0% 7.9% 7,000,000 Overall net absorption in 2011 totaled 7.0% 7.0% 6,000,000 negative 173,897 square 5,124,956feet, 6.0% 5,000,000 compared to positive 866,345 square feet at the5.0% end of 2010. While overall 4,000,000 year-end4.0% absorption was negative, 3,000,000 1,868,112 1,795,931 quarterly3.0% absorption was positive, 2,000,000 ending the2.0% fourth quarter with 137,174 446,554 1,000,000 square feet.1.0% 0 (54,974) Class A properties0.0% ended the year on -1,000,000 2007 2008 2009 2010 2011 2012 YTD a positive note with year-to-date absorptionSource: of Costar; 374,697 Colliers square Research feet. Absorption Vacancy 555 APTAKISIC ROAD LINCOLNSHIRE, IL www.colliers.com/chicago www.colliers.com/chicago RESEARCH REPORT | YEAR-END 2012 | CHICAGO | RETAIL O’HARE The O’Hare submarket displayed substantial improvement by ending the fourth quarter with a 7.3 percent vacancy rate compared to 9.1 percent at the end of 2011. The reduction can be mostly attributed to shopping centers where a 3.0 percent decline in vacancy was reported over the last year. Despite reporting negative 6,782 square feet of net absorption in the fourth quarter, the submarket ended the year with positive 873,622 square feet of absorption. Weighted average asking rates were reported this quarter at $13.52 per square foot down $2.00 per square foot from the prior year. Super regional/regional malls had the largest spike in asking rents increasing from $29.42 per square foot last year to $35.50 per square foot at year end. One of the most discussed retail projects this year in the O’Hare submarket was the development of The Park at Rosemont which opened in the spring of 2012. The Park at Rosemont is a 200,000 square foot entertainment complex, directly off interstate 294, comprised of restaurants, bars, a THE PARK AT ROSEMONT comedy club, skating rink and bowling venue which are all strategically placed next to the Muvico 18 ROSEMONT, IL movie theatre. The development has already helped generate more business and tourism. Another new project, Fashion Outlets of Chicago will be located just east of interstate 294 and is a 550,000- -square foot discount luxury shopping center set to open in the spring of 2013. As of September 2012 the mall executives already had 80% of the complex leased including four anchor tenants: Saks Off 5th, Neiman Marcus, Bloomingdale’s and Forever 21. AskingASKINGAsking Net Gross RentalNET Rental RENTALRates Rates RATES CHICAGO OVERALL OverallOverall Chicago Chicago Retail Retail Market Market 18.5018.50 18.1518.15 18.0018.00 17.5417.54 17.3217.32 17.5017.50 17.0017.00 16.58 16.5016.50 16.2116.21 15.84 15.84 16.0016.00 15.50 15.50 15.00 15.00 14.50 2007 2008 2009 2010 2011 2012 YTD 14.50 2007 2008 2009 2010 2011 2012 YTD Source: Costar; Colliers Research Source: Costar; Colliers Research NORTHWEST The Northwest submarket looked optimistic in the fourth quarter of 2012 with positive absorption of 127,935 square feet. The vacancy rate remained stagnant at 10.7 percent during the year while asking rates decreased by $0.75 per square foot to $14.50 per square foot. A notable fourth quarter lease transaction was TJ Maxx/Homegoods’ 50,000-square-foot lease at Deer Grove Center in Palatine. The retailer will take occupancy in May of 2013. During the fourth quarter, CalPERS paid more than $500 million for a 50 percent stake in the Woodfield mall leaving them with full ownership, valuing the shopping center at more than $1 billion. The sale brought about discussions across the industry, mostly in a volatile time for malls, helping to increase retailer’s confidence. A month after the purchase CalPERS formed a joint venture with Institutional Mall Investors (IMI) releasing half of its stake to IMI. The property currently carries a $425 million mortgage. NORTH The North submarket showed improvement in 2012 with vacancy rates decreasing from 8.4 percent at year-end 2011 to 8.2 percent at the end of 2012. Specialty centers produced lackluster results with vacancy increasing by 2.7 percent. Absorption remained positive in the fourth quarter with 91,060 square feet, resulting in a positive year-end absorption of 68,771 square feet. Despite vacancy decreasing and absorption remaining positive, weighted average asking rates declined over the last year by $0.11 per square foot to $16.23 per square foot. The North submarket had some notable fourth transactions on both the leasing and acquisitions side. Hawthorn Hills Square, a 193,000-square-foot property in Vernon Hills, sold for $37.5 million in October of 2012 to Kimco Realty Corp. Kimco assumed a $21.6 million mortgage with the property that has PetSmart and Dick’s Sporting Goods as COLLIERS INTERNATIONAL | P. 2 RESEARCH REPORT | YEAR-END 2012 | CHICAGO | RETAIL tenants. Another noteworthy transaction involved Party Fantasy leasing 30,000 square feet in part of the largest retail corridor in Mundelein. New development is also in talks for the coming year with Wal-Mart targeting to build a new 151,000-square-foot store in Northbrook and Dave & Buster’s aiming to renovate Hawthorn Mall in Vernon Hills. Their plans currently consist of opening a 4,000- square-foot facility that would be attached to the mall. WESTERN EAST/WEST CORRIDOR The Western East/West corridor picked up momentum during the fourth quarter, ending the year with a 10.0 percent vacancy rate compared to 11.3 percent in 2011. Power centers helped to fuel the drop in vacancy by producing a 4.0 percent decline over last year.