Mixed-use projects are booming, and for good reason: the city as we know it is fundamentally changing. Millennials are flocking away from the suburbs and into the city center, driving development in walkable urban cores that incorporate everything consumers need to live, work and play.
In Chicago, a dramatic increase in mixed-use development since the last recession has completely recast the way we think about how retail concepts fit into our unique urban landscape. Mixed-use buildings anchored by residential projects are well supported by the city’s political class because they increase density in a city that’s already bursting at the seams.
Meredith Oliver, Cushman & Wakefield
Changes in the way the City of Chicago approaches zoning has led to an uptick in transit-oriented development, which allows for lower parking requirements in projects centered around mass transit hubs. The city’s transit-oriented development (TOD) ordinance, which was approved in 2013 and revised in 2015, has been the driver behind the massive influx of new mixed-use projects over the last four years.
Mixed-use advantages
From a purely economic standpoint, mixed-use projects boast a diverse tenant roster, which typically means less risk for investors. Land prices in Chicago have reached a point where in some cases standalone retail is no longer economically viable. What’s more, residential components typically hold steady during commercial real estate downturns, creating greater stability during uncertain economic times.
In short, the days of the traditional grocery-anchored shopping center appear to be numbered. In the core urban areas of Chicago, there is not enough developable land left to allow for traditional suburban-style grocery-anchored strip center development. The land or redevelopment parcels that remain now have too much vertical development value to solely build strip centers, thus creating the mixed-use vertical development initiatives.
Game-changing projects
Three major projects our team is supporting underscore this trend perfectly. For example, Centrum Partners’ Centrum Wicker Park will offer convertible, one- and two-bedroom apartments that are a mere two-minute walk to the Chicago Transit Authority’s Division Blue Line stop. Centrum is in advanced negotiations with a small-format, high-end grocer for the largest block of space — about 11,000 square feet — in the six-story building, which is expected to deliver by the end of the year.
The second phase of the development will include an additional 17,000 square feet of retail space on two levels, and is expected to be completed in the second half of 2017. Negotiations with several restaurant groups are ongoing for the ground-floor space, while a service-oriented tenant will likely occupy the second floor — think education, healthcare and fitness.
In Lincoln Park’s Clybourn Corridor, Structured Development is working on a 200,000-square-foot project that will be built on land formerly owned by Big Deahl Productions. The project will feature 140,000 square feet of retail, and we are in negotiations with major tenants for about 75,000 square feet of space on the second and third levels of the project. The site is nestled near Whole Foods Market’s local flagship and Structured Development’s 1 million-square-foot mixed-use development known as New City, which opened in fall 2015 a block away.
And in Old Town, Onni Group broke ground in March on the redevelopment of Atrium Village, located two blocks from Lake Michigan. Upon completion, the project will provide approximately 1,500 residential units and 33,000 square feet of ground-floor retail in two phases. The first phase of Atrium Village will include 24,000 square feet of high-exposure retail on the corner of Wells and Division streets.
In all of these projects, retail complements the residential component — a trend our team believes will only grow over the next three to five years. Each of the projects is positioned in a high-density infill site close to public transportation in well-established submarkets. This is a trend that will be sure to drive growth in Chicago’s retail commercial real estate sector for years to come.
— By Meredith Oliver, senior director, Cushman & Wakefield. This article first appeared in the October 2016 issue of Heartland Real Estate Business magazine.