by Dan Rafter
Sean Sharko and Austin Weisenbeck know the retail market in the communities surrounding Chicago. The two real estate pros are vice presidents of investments in the Chicago Oak Brook office of Marcus & Millichap. The two are also specialists in the retail segment.
The good news? Both Sharko and Weisenbeck say that retail continues to rebound in the Chicago suburbs. There’s still room for improvement, of course. But retail activity is on the rise.
“We are seeing more activity. With that said, most of the activity is still limited to a handful of retailers that are very active right now,” said Sharko. “There are a dozen or so retailers that are active. That is better than it was a year ago when it comes to retail expansions. Last year, there were only five or six retailers expanding. Now there are 12.”
Who is expanding? The retail market today thrives on yield and credit, Weisenbeck said. Any developments with credit in them are seeing better cap rates than ever, he said. Then there are the big names. Weisenbeck said that retail developments featuring brand-name stores are more likely to come to fruition today.
“Anything with a Starbucks or some kind of national publicly-traded company is where most of the demand is now,” Weisenbeck said.
For the retail market to continue to improve in suburban Chicago, the area needs to see a boost in new home starts, say both Sharko and Weisenbeck. And these new homes need to appear not just in Chicago and its closest suburbs but in the farther-flung collar counties.
Those counties, of course, are taking the longest to recover from the housing crash. When homebuilders return to these areas, it will spur more retail development.
“All the big-box stores are pretty much driven by home growth,” Sharko said. “The Home Depots, the discount retailers, the grocery stores, the T.J. Maxx stores all depend on the housing market. You need population growth and new areas for those boxes to target for new stores. Until home starts pick up, the junior and big-box stores won’t demand new space.”
This means that much of the retail growth today is coming from smaller tenants that are seeking expansion opportunities. Starbucks and Chipotle Mexican Grill are two examples of smaller retailers that are looking for new locations in the suburbs of Chicago. Family Dollar and Dollar Tree are both aggressive today, as are other discount retailers. Fast-casual restaurants remain strong performers in the Chicago area.
Sharko and Weisenbeck pointed, too, to retailers such as mattress specialist Sleepy’s, Vitamin Shoppe, Potbelly Sandwich Shop, Advanced Auto and O’Reilly Auto Parts as being in expansion mode.
“Those retailers were not as impacted by the recession,” Sharko said. “They were able to rebound faster.”
Weisenbeck said that there are plenty of reasons for retailers to look at the Chicago suburbs for their new locations. The most important? Disposable income.
“When you look at the Western and Northern suburbs of Chicago, and even the Southern suburbs, you see a population with a lot of disposable income,” Weisenbeck said. “They have the money to spend. That, of course, is attractive to retailers.”
This doesn’t mean that retailers aren’t shying away from suburban areas that don’t boast a large percentage of wealthy consumers. Weisenbeck said that many retailers are looking at less-affluent suburban areas for their new locations.
As he says, it all depends on the retailer and its target audience.
And what about the future of retail in suburban Chicago? Both Sharko and Weisenbeck say that they expect steady retail growth for the rest of 2014 and into 2015.
“I think the growth will stay at the same pace,” Sharko said. “There will always be a couple of retailers that want to expand while others slow down. McDonald’s can only do so many stores. There won’t be a plethora of brand-new retailers to hit the Chicago suburban market, but there will be a constant flow of retail business.”