Is suburban retail dead? The short answer is “of course not.” While the recession was especially hard on many suburbs, recent activity indicates that conditions have improved greatly. To better understand where we are, we need to examine where we have been.
During the real estate boom leading up to 2007-08, retail developments were sprouting up everywhere. Many developers expanded farther and farther away from Chicago, while incurring an additional risk through overleverage and speculative projects.
The economy started to crash about the same time that many real estate projects came to market. Developers and landlords quickly discovered that there was a lack of consumer demand necessary to drive retailers to lease space in the newest suburban centers.
Many retailers were attracted to the suburbs due to high household income levels. However, population density was often overlooked. Even the most affluent suburbs experienced difficulties as too many retailers were chasing a limited amount of customers.
Tale of Two Markets
As the economy and overall real estate market started to recover, many retailers focused their energies on opening stores in Chicago’s core metro areas. Neighborhoods such as the West Loop, Streeterville, River North and Wicker Park were on fire.
For many suburban landlords, it seemed that we were in two different economies. New developments and retail stores were popping up across Chicago’s core neighborhoods, while the suburbs continued to struggle with vacancy and rent collection issues.
Eventually, retailers started expanding in other areas. Initially, they branched out into other neighborhoods in Chicago, followed by select suburbs such as Schaumburg, Glenview/Northbrook, Naperville, Vernon Hills, Oak Brook, Downer’s Grove, Gurnee, and others.
In time, many of these retailers will expand to other suburbs. Suburbs in southern Cook County may be the last to re-emerge from the recession, but in time they too will be back. Tenants such as Burger King and
DaVita, which provides dialysis services for patients with chronic kidney disease, are not only opening new locations in the south suburbs, but are also expanding their existing locations.
What do these retailers, and many others like them, look for in today’s economy? For one, the pioneering days are over. Tenants will no longer venture to remote areas in hopes that residential development and consumers will follow. Today’s suburban retail tenant is looking for high population density, strong daytime population, and a concentration of businesses. Co-tenancy is also a key factor.
Some retailers that have increased their efforts to expand to the suburbs include Orange Leaf Frozen Yogurt, Blast Fitness, Firehouse Subs, Submarina, Checkers, Star Cinema Grill, The Lockup Self Storage, Rocket Fizz Soda Pop & Candy Shop, Kay Jewelers, Starbucks, Tide Dry Cleaners, OfficeMax and many more.
In addition to national tenants, many startups and independents are finally beginning to re-emerge. Small businesses were hit especially hard during the recession, and many are only now able to access capital and funds.
Developers are closely monitoring the market for the right opportunity to jump back in. One of the most exciting and successful new developments is the Fashion Outlets of Chicago, located in Rosemont, which opened in August 2013. It is the first new indoor mall in the Windy City in nearly two decades. The $230 million, two-story, 530,000-square-foot mall includes 130 high-end retailers and outlet prices. Stores include Gucci, Michael Kors, Giorgio Armani, Tory Burch Outlet, and Cole Haan to name a few.
Other noteworthy projects include Phase II of CityGate Centre in Naperville, a 500,000-square-foot office and retail development; 900 N. Meacham in Schaumburg, a 20,000-square-foot center featuring Protein Bar, Roti, Potbelly Sandwich Shop, On the Border Mexican Grill and Cantina; and the redevelopment of the Purple Hotel in Lincolnwood, featuring 370,000 square feet of retail, a hotel and a theater.
In short, retail is far from dead in the suburbs. The next couple of years should be an exciting time for the sector as a whole across Chicagoland.
— By Paul Tsakiris, President, Managing Broker, First Western Properties. This article first appeared in the February 2014 issue of Heartland Real Estate Business magazine.