Retail vacancy on Chicago’s Magnificent Mile more than doubles from pre-pandemic levels
Tenants who decided not to reopen their stores along the Mag Mile included Macy’s, Uniqlo and The Gap.
Reproduced with permission from Direct commercial real estate:
The retail vacancy rate along the Magnificent Mile, a well-known shopping district in downtown Chicago, was 9.3% in the fourth quarter, according to CoStar data compiled by Cushman & Wakefield.
That’s up from 5.9% a year earlier and nearly triple the 3.3% rate in the fourth quarter of 2019, before the coronavirus pandemic began. The soaring vacancy rate in the region compares to Chicago’s overall vacancy rate, which actually improved, to 9% in the fourth quarter of 2021, from 9.3% the previous year and 9.2% in the fourth quarter of 2019.
The retail vacancy rate had increased across Chicago, as it has in most cities, due to Covid-related restrictions that forced retailers to close stores — many permanently. But while the overall Chicago market, in terms of vacancy, has rebounded, that has not been the case along the Mag Mile. The culprits: rents and crime.
Retail space along the 2.8 million square foot shopping district that sits along North Michigan Avenue averaged $94.14/sq ft at the end of last year , according to Cushman. The area has always been a luxury shopping area. Among its tenants: Nordstrom, Patek Philippe, Hugo Boss and Hermes. Rents in the area compare to the average of $19.15/sf for the entire city. Most retailers – outside of those in the luxury category – would be reluctant to pay Mag Mile rents.
Among the tenants who decided not to reopen their stores along the Mag Mile were Macy’s, which closed its location at 835 North Michigan, where it had leased 170,000 square feet; Uniqlo, which closed its 61,000 square foot store at 830 North Michigan; and the Gap, which closed its 49,000 square foot store at 555 North Michigan.
The departure from Gap had a negative impact on a CMBS operation which holds a $55.46 million loan against 555 and 545 North Michigan. The loan, securitized through Hamlet Securitization Trust, 2020-CRE1, has been transferred to special service as it is expected to default. When it was underwritten in 2017, rents in the area were expected to climb to $123 and the space void created by the planned departure from Gap would be quickly filled.
The Mag Mile has been plagued by increasing crime and a sharp drop in foot traffic caused by a rising office vacancy rate. The number of felony complaints in Chicago was 8% higher in 2021 than in 2020, and the number of felony complaints filed in the first few months of this year was already 34% higher than all of 2021, according to Chicago Police Department data compiled by BofA Securities. ‘ CMBS research team. So far this year, thefts, for example, are up 10% on last year and thefts are up 61%.
Meanwhile, the area has seen a decline in the number of office workers, which reduces foot traffic. Kastle Systems reported this week that actual Chicago office occupancy was just 34.6%. That’s up 1.1 percentage points from the previous week. And that compares to Chicago’s official vacancy rate of 20.3% for the fourth quarter, according to Cushman & Wakefield. That was up from 16.4% a year earlier.
Community leaders make efforts to solve problems. A panel formed by the Urban Land Institute of Chicago recently made several proposals to revive the Mag Mile after noting that Chicago sales tax revenue for the ZIP code that includes the shopping district has seen a 23% decline. in 2020. The panel’s proposal was first reported by Crain’s Chicago Enterprise.
He suggested the Chicago Police Department should increase its presence in the area, recommended installing more security cameras and launching a media campaign to convince potential buyers that the area was safe.
The panel also suggested that the development of a plaza for entertainment purposes would encourage more traffic to the area. The proposed site for the plaza would be the Department of Water Management Service Yard and Fire Hall, south of 835 North Michigan Ave. along the Chicago River. Reproduced with permission from Commercial Real Estate Direct.
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