Retail Outlook: Mixed Bag for 2013
CHICAGO—Though some sources of uncertainty hindering spending will go away in
2013, Jones Lang LaSalle’s 2013 National
Retail Real Estate Outlook doesn’t predict a
whole lot of improvement for the sector this
year. Despite continued stable pricing and
pent-up demand for non-durable goods
driving consumer spending slightly, uncertainties remain in buyers’ minds.
The general election is behind us, as is
immediate fear of a fiscal cliff. Even so, risks
to retail sales will include a potential spike
in energy prices, natural disasters, geopolitical instability worldwide and shifts in buying
patterns and online purchasing.
As a result, retail fundamentals suggest
that occupancy and rental rates will stag-
nate. Though some retailers will expand
aggressively, there is a concurrent trend
toward smaller firms. And as some chains
vacate big-box spaces or close altogether,
off-price department stores and other retail-
ers will work to backfill the space. Retail
trends for 2013 include:
Windy City Office Users Meet the New Normal
The most pronounced trend in the Chicago office scene in 2012
was the continued migration of corporate space users from suburban locations to the city. That trend will continue to drive corporate location patterns for at least another year, and will widen the
already stark gap between the health of the suburban markets and
that of Chicago’s CBD.
Technology firms are moving into the city;
the financial services, energy, consulting and
food service industries are growing their presence as well. We have
seen a trickle of
migration in the
pharmaceutical and bioscience industries. The
main reason so many industries are relocating
to the city is that’s where the new talented labor
is choosing to live. Employers want to attract young tech-savvy workers, especially those trained in engineering, mathematics and computer technology. Those younger professionals generally want to live
in the city rather than the suburbs, at least in the early stages of their
careers. And it’s not just recent college graduates who are choosing
to live in the city. Couples with children, who a generation or two ago
would have moved to the suburbs for a quieter environment and
better schools, are now choosing to stay in Chicago to take advantage
of the cultural opportunities and the broader selection of viable
public schools and charter schools—and to avoid the high cost of
This renewed interest in Chicago’s CBD has led to higher
demand for quality office product. Total CBD vacancy dropped
almost a full percentage point in 2012 to 17.2%, with most of the
vacancy found in the less desirable buildings. The city’s trophy
By Rick Schuham
office buildings are virtually full, and it’s very hard to find blocks of
class A office space, with good views, of 50,000 square feet or more.
Accordingly, after a five-year hiatus, we’ll finally see some development of new office product in Chicago’s CBD commencing in
2013. Two major projects are currently being discussed, and at least
one of them is almost certain to break ground this year.
This addition of nearly two million square feet of prime space
will create opportunities for tenants of corporate real estate.
Owners of existing downtown Chicago office buildings will have to
anticipate the needs of prospective new tenants, especially those
moving into the city from the suburbs. Tenants, meanwhile, will
have to use their space to attract the best employees.
As tenant representatives, we are asked by our clients to assist
them in creating high-collaboration workplaces that pull employees
back to the office. We’ve gone through the process of eliminating big
offices and generating solutions with smaller, more functional cubicles, all in an effort to maximize space-use. There also has been a
strong push for a mobile workforce over the past five years.
Today however, the need for teamwork has forced thought-leading companies to reconsider the idea of a far-flung workforce.
With product lifecycles getting shorter, innovative companies want
their people collaborating on-site, and they desire space that is
internally mobile. Often, a company’s high-value employees will
have expectations for their workplace that run contrary to what
their employers think they want. Addressing that dissonance is the
next challenge in creating high-productivity offices.
Rick Schuham is executive vice president, director and branch manager at
Studley’s Chicago office. He may be contacted at firstname.lastname@example.org. The
views expressed here are the author’s own.
Vital Signs...Chicago’s CBD experienced more than 330,000 sf of absorption during Q4 2012.—MB Real Estate