Retail building to hit low, then recover
(Crain's) — Shopping center development will be at a historic low this year but snap back in 2012 to the highest level in several years.
Only three new centers are slated to open this year, along with one major expansion, tallying a total of just 634,000 square feet of new shopping-center space in the Chicago area, according to an annual report by retail real estate brokerage Mid-America Real Estate Corp.
That's a 46% fall from the amount of new retail space in 2010 and the first time annual development will total less than 1 million square feet since at least 1983, when Mid-America began tracking the data.
“The shopping center business is a big business, and it just stopped,” says Andy Bulson, a senior vice-president with Oakbrook Terrace-based Mid-America. “It's a pretty amazing situation.”
The picture is expected to brighten in 2012, when Mid-America expects development of 2.67 million square feet. That would be the highest since 3.7 million square feet of new retail space opened in 2008.
Mr. Bulson says much of the development on the books is going to be driven by smaller, grocery-anchored centers in urban locations rather than the mainstay of retail development during the 2000s: suburban supercenters like Target and Wal-Mart and home-improvement chains like Home Depot, Menard's and Lowe's.
Given the dire state of the housing market and the expectations of a slow economic recovery, Mr. Bulson figures development won't approach the 2007 peak of 8.4 million square for many years.
“It's going to come back to a new normal,” he says.
Local development activity last year was led by Issaquah, Wash.-based warehouse retailer Costco Wholesale Corp. along with Wal-Mart Stores Inc. Bentonville, Ark.-based Wal-Mart, the world's biggest retailer, also is anchoring one of the three shopping centers to open this year and is scouring the city for locations it could open next year.
Mid-America predicts 15 new shopping centers will come online in 2012. Nine of those will be anchored by grocery stores such as Mariano's Fresh Market, the new concept from Milwaukee-based Roundy's, along with Whole Foods and Kroger Co.'s discount chain Food 4 Less.
One reason for the optimism is that Mr. Bulson and others say the vacant spaces created when many chains shut their doors during the recession are gradually getting filled, and that developers are resurfacing. The local retail vacancy rate fell in the second and third quarters last year after peaking at 12.1% in the first quarter, according to CB Richard Ellis Inc.
“There's going to be demand for new development again,” says Andrew Koglin, president of OKW Architects, which specializes in designing shopping centers. “The tide has been rising in planning for retail.”
Grocers and other retailers are getting more creative in their quest for so-called in-fill sites, locations in urban settings and areas of dense population. One such example was Aldi Inc.'s recent lease for 17,000 square feet in the Chicago Ridge mall.
Michael Mallon of Wheaton-based Mallon & Associates Ltd. represented Aldi and says he expects more grocers and discount chains to consider similar deals in coming years.
“There's not going to be a lot of greenfield growth,” Mr. Mallon says. “Most of what we're going to see in the next several years is redevelopment of existing shopping centers.”
The three new projects to open this year are:
A 200,000-square-foot redevelopment of the Randhurst Village at Rand and Elmhurst roads in Mt. Prospect, anchored by T.J. Maxx and Sports Authority stores.
A 176,400-square-foot Wal-Mart Supercenter is slated to open late this year in Elgin at Randall and Bowes roads.
A 68,000-square-foot Sunset Foods in northwest suburban Long Grove at State Route 83 and Aptakisic Road.
