Andy Bulson, Mid-America Real Estate
Looking ahead, 2015 should yield a little over 2 million square feet, which will likely prove to be within the normal range for development going forward. However, this is significantly less than the 8.3 million square feet completed in 2007.
One of the primary causes of this decline is the demand for new shopping center space in the suburbs is primarily limited to single users, predominately grocery stores. While the demand for multi-tenant retail developments in urban markets remains high, the barriers to entry are significant.
Consider, for example, that of the combined 26 new projects delivered in 2014 and planned for 2015, only one project, Regency Centers’ Shops on Main in Schererville, Indiana, is a suburban project built to accommodate more than one big-box retailer.
Anchored by Gordmans, Shops on Main is also home to DSW, Home Goods, Ross, Pier 1 Imports and a planned Whole Foods. All of the remaining suburban projects are limited to single users such as Walmart/Sam’s Club, Target, Mariano’s or Meijer. The mid-sized boxes are growing by backfilling existing space.
Persistence is a Prerequisite
Within the densely populated urban markets of the City of Chicago and surrounding collar communities, there are far fewer shopping centers and the demand for power center development remains high.
However, availability of land is limited, municipal approvals can be difficult and the higher vertical intensity of the projects make them more expensive and more challenging to construct and finance.
By way of example, consider the New City project located in the heart of Chicago’s Lincoln Park neighborhood. This mixed-use project featuring nearly 400,000 square feet of retail and 199 residential units has been actively worked on for a decade. The project will help to satisfy a good portion of the retail demand within this otherwise difficult to enter trade area, but it has required the combined efforts of some of Chicago’s most successful retail developers to make it happen.
According to Bucksbaum Retail Properties LLC, New City encompasses retail, entertainment and dining as well as an upscale grocer and luxury living. New City is a transit-oriented development that seeks to attract consumers from day to night.
Additionally, The Maxwell project located in the South Loop neighborhood opened in 2014 and added 220,000 square feet of retail space to the market. This project, located near Roosevelt Road and Canal Street, was originally conceived as a mixed-use project with residential and retail, but in the end the City of Chicago would only support the retail portion so the plans for the project had to be revised.
Ultimately, the developer demolished an industrial facility and constructed a two-level retail building with an adjacent parking structure. (The Maxwell shopping center was a joint venture between developer Rob Bond and Bucksbaum Retail Properties.)
Hungry For Market Share
The demise of Dominick’s has paved the way for the continued expansion of other Chicago-area grocers, all of whom are competing to pick up the available market share. At the forefront of this expansion is Mariano’s, which has continued to consistently open five new locations per year. Owned by Milwaukee-based Roundy’s Inc., Mariano’s opened its first store in Arlington Heights, Ill., in July 2010. It now operates 30 stores across metro Chicago, according to the company’s website.
With store sizes of approximately 200,000 square feet, Meijer and Walmart are largely limited to outlying greenfield sites. Mariano’s on the other hand has been looking to tap into more densely populated, affluent areas where there are identifiable gaps in grocery store coverage.
Coming Full Circle
Since the early 1980s, when Mid-America Real Estate’s shopping center report first began tracking the construction of shopping center development, the report has catalogued the construction of more than 132 million square feet of gross leasable area.
Much of this construction was fueled by the growth of retailers such as Kohl’s and Target, which are now essentially fully built out in the Chicago market. However, today’s grocery-driven trend brings us back to where the shopping center business began — the neighborhood grocery-anchored center.
— By Andy Bulson, principal, director suburban tenant representation, Mid-America Real Estate Corp. This article originally appeared in the February 2015 edition of Heartland Real Estate Business magazine.