Marcus & Millichap Predicts Retail Upswing

CHICAGO-While it’s true that both occupancy and rents continued to drop in the second quarter 2010, researchers at Marcus & Millichap said in their recent market report that the losses have slowed considerably. Sprinkle in 0.2% job growth and add a dash of renewed interest, and the Chicago retail market might have the making of a comeback starting in the fourth quarter, the company officials said.

Single-tenant, net-leased retail assets have seen almost constant interest, as retail investors have decided that is the only trustworthy property, says John Przbyla, first vice president at the Chicago office. “With national credit properties, you’re looking at high seven cap rates to mid-eight cap rates,” he says.

However, multitenant properties, literally ignored in 2009, are starting to attract interest again, Przbyla says. “Lenders are starting to re-engage, and we’re now getting offers on listings,” he tells GlobeSt.com. He says he just closed a property in Lincoln Park off Fullerton, with 10 tenants and decent debt, after about a dozen showings.

Vacancy is at 11%, and development is also still almost non-existent, especially in the suburbs. In the city, the two main projects are the 200,000-square-foot, Target-anchored Wilson Yard; and the 400,000-suare-foot Roosevelt Collection in the South Loop. About 2.4 million square feet will come online in the Chicagoland area this year. “We won’t be seeing large, one-million-square-foot new malls for a long while,” he says.

Przbyla says he believes the market return should start in Q4. “We’re seeing everything come back, though slowly, including liquidity and debt, life companies, commercial banks and even CMBS. It will take awhile, lending is still very conservative, which lenders looking at each lease and each tenant. We should see the loosening up starting in the fourth,” he says.