Perception Drives Anchor Rents Up

CHICAGO—Rents for retail anchor spaces in the metro area have increased considerably in the past year, but experts say that boost may not be justified by the relatively slow absorption and high rate of vacancy in the market.

“It's partly due to how people perceive the market,” Joe Parrott of CBRE tells GlobeSt.com. The Bannockburn, IL-based senior vice president of retail services specializes in leasing anchor retail space throughout the Midwest, and just released the company's annual spring report on anchor retailers in Chicagoland. “Everyone has heard a great deal of good economic news and assumes it's more broad-based than it really is.”

Parrott's analysis is based on available retail spaces of 20,000 square feet or larger within the 56 largest regional shopping areas in metro Chicago, within existing centers, or as an anchor pad at an existing center.

In the past year, average asking rents for these retail anchor spaces grew over 20% and average rent comps increased over 30%, he adds. At the same time, however, the amount of available space reached its highest point since 2009. Roughly 9.5 million square feet is available, versus the 8.8 million square feet that was open in 2010. In addition, only 1.2 million square feet was absorbed in the past year, only 13% of the space available and down nearly 50% from last year.

The mismatch between rental increases and the absorption level probably means those increases are not sustainable over the long term, says Parrott. But over the short term the impact is uncertain. “If a majority of landlords think that higher rents are justified, for now tenants won't have many options. If your boss says you need to open 20 new stores this year, you can't wait them out.”

The office supply sector added the most vacant space to the anchor market in the past year, Parrott found. The merger of Office Max and Office Depot, along with online competition, led many players to occupy smaller stores. And most observers consider the larger stores still occupied by these companies as potentially available. This process will accelerate if government regulators approve the takeover of Office Depot by Staples, he adds.

To fill up some of these empty spaces, Parrott says that Chicagoland needs more retailers that are new to the region. In the past few years, Ross Dress for Less, Planet Fitness and Art Van Furniture have opened their first outlets here, many in spaces left vacant by other retailers. As reported in GlobeSt.com, for example, in 2013 Art Van opened its first local outlet, a 48,000 square-foot space in suburban Orland Park. The company followed up by opening other locations in Merrillville, IN, Batavia and several Chicago stores. “We really need another one of these.”