Retail Property Values Remain High Despite Soft Retail Market

CHICAGO-In its recently released Retail Research Report on the Chicago market, Marcus & Millichap Real Estate Investment Brokerage Co. concludes that retail property values will remain strong, despite the slowdown in the local and US economy and the steep dip in consumer confidence in the fall of 2001.

Among other things, the report finds:

– Retail property prices got off to a strong start in 2001, with shopping center averaging more than $80 per sf in metro Chicago. So far this year, properties have sold at an average of $89 per sf, with first quarter 2001 numbers even higher, $95 per sf.

– Retail construction will drip slightly in the next 12 months, in response to stringent underwriting standards. Retail construction in the Chicago area reached its highest level since 1997 last year, with more than 4.5 million sf coming on line in 2000.

– Newly completed retail properties, coupled with a decrease in absorption, will push vacancy higher in the short term. Absorption of retail space in metro Chicago dropped in each quarter since Q3 1999. While construction starts dropped by 14% from 1999 to 2000, absorption fell by nearly 40%. As a result, retail vacancy has increased. Average vacancy was relatively flat through 2000, at 9.9%. However, with store closures and bankruptcies, combined with fewer expansions, have caused vacancies to rise to its current level of 10.3%.

– And, rents have fallen through the first half of 2001, as new and sublease space has reduced competition and absorption has slowed. A drop in construction starts, as well as better than expected retail sales, should help tighten the market in the long term. Average rents have dropped from their highest level of $15.11 per sf in Q4 2000, to the current level of $14.91 per sf.