Retail Tenants and Owners Shrink, Opt for Outlets
INDIANAPOLIS—As the retail market struggles to
make its comeback, two trends seem to be
growing in terms of store loss and development: big boxes are shrinking and outlets
are taking over. Two main Midwest-based
store brands, Sears and Best Buy, announced
plans in the first quarter to shrink both store
count and store size. However, Simon
Property Group and Taubman Centers,
both Midwest mall developers, have gone on
an outlet-building tear, sometimes even
competing in the same market.
Hoffman Estates, IL-based Sears is still
working to close more than 120 of its 4,000
stores, including some Kmart locations. The
company had reported a $2.4-billion loss for
the fourth quarter and recently hired Mall
Properties Inc. president and CEO David
Lukes to take over its real estate development division.
Minneapolis-based Best Buy, which
reported a $1.7-billion loss in the fourth
quarter, said in mid-April that it would close
50 of its big-box stores by the summer. Brian
Dunn, CEO of the electronics retailer, said
he wants to move the firm to operating
fewer big-box locations and opening store
formats with smaller footprints and more
focused product offerings.
Chicago’s River North: Today’s Office Trend Setter
As the commercial real estate market continues its recovery, new
submarkets and neighborhoods are emerging and being redefined.
Chicago’s River North neighborhood is one such area. During the
past few years, it’s become one of the Midwest’s most dynamic and
increasingly attractive commercial office submarkets.
From a space-use standpoint, it has historically attracted design, advertising and architecture firms and art galleries, among other like-minded tenants.
However, if recent market activity is any indication, this lively and trendy 24-hour neighborhood is now attracting large, more traditional
office users such as law firms, financial ser-vices/investment firms, associations and corporate headquarters. According to CBRE, River North now has the
lowest overall downtown office vacancy rate in Chicago.
So why are these types of tenants—who once favored Chicago’s
Central Business District (also known as the Loop)—headed north?
With its broad range of amenities, accessibility to public transportation and an influx of new properties, River North’s tenant appeal is
not hard to decode. This combination of amenities helps improve
the quality of life for tenants, while also providing nearby lodging
and entertainment opportunities for tenants, clients and guests.
Now, tenant representatives and their clients are taking notice.
River North has recently seen an uptick of national or multi-national
companies moving or relocating corporate headquarters to the area.
Michael Sessa, managing director at Jones Lang LaSalle, commented, “Companies all over the world are focused on attracting the
best and brightest workforce. The energy of the River North submar-
By Jeff Patterson
ket is a strong draw that gives these companies a competitive edge.”
Based on recent leasing activity, businesses that have traditionally housed their offices in the Central and West Loop are now
seeking a less traditional atmosphere for their work environments.
For example, 300 N. LaSalle, which was completed in 2009, now
houses headquarters for major corporations, including Kirkland &
Ellis LLP, Pfingsten Partners LLC and the North American headquarters for Aviva PLC. And Prime Group’s 330 N. Wabash recently
underwent a significant redevelopment and modernization effort.
As a result, the building’s occupancy rose from 42% to 87% in the
past six months and is now home to the headquarters of the
American Medical Association and SmithBucklin.
River North’s growing appeal has caught the eye of many
investors, as well. The area’s office market has seen some
impressive activity in the past two years, including Tishman
Speyer Properties’ $385-million purchase of the 46-story tower
at 353 N. Clark and KBS Realty Advisors’ purchase of 300 N.
LaSalle for $655 million—the highest price ever paid for a
Downtown Chicago office building.
Seeing a once-predominantly residential market expand to
meet the needs of commercial real estate users exemplifies the new
standards of today’s tenants: amenities, accessibility, lifestyle and
entertainment are important factors in making leasing decisions. It
will be interesting to see how other local neighborhoods and urban
markets can create areas like River North and adapt to meet and
exceed the expectations of today’s tenants.
Jeff Patterson is the chairman, president and CEO of Prime Group Realty Trust in
Chicagp. He may be contacted at firstname.lastname@example.org. The views expressed
here are the author’s own.
Vital Signs...Metro Chicago was the second-best data center leasing market in the US after Santa Clara, CA in 2011.—Avison Young