Schaumburg and Chicagoland: Tenant Representation & Office and Commercial Space for Sale and Lease

(Crain’s) — Local retail leasing continues a gradual recovery, but landlords and brokers are braced for a long, gradual climb out of a tough economy. The Chicago area’s vacancy percentage fell for a sixth consecutive period in the third quarter, to 9.6% from 9.7%, according to CB Richard Ellis Inc.That is down dramatically from 12.1% in the first quarter of 2010, when retail real estate bottomed out. But it’s still a long way from 2004 through 2007, when vacancy stayed below 8% for all but one quarter.

“What I think is happening is, we’re running out of Class A space at cheap rent, which was driving a lot of these retailers to expand,” says Joe Parrott, a CB Richard Ellis senior vice-president who specializes in anchor-tenant leasing. “After the recession there were some great opportunities, but most of the low-hanging fruit has been picked.”

Developer and retail building owner Evan Oliff, president of Chicago-based Preferred Development Inc., says the old location-location-location adage is particularly relevant as it relates to vacancy rates and rent. “Much more so than ever,” Mr. Oliff says. “The Bucktowns of the world, the Southports of the world, the urban core is doing very well. A lot of it depends on where it’s located and how they’re doing sales-wise.”

Asking rents averaged $15.97 a square foot in the third quarter, a second consecutive period of improvement and $1.14 above one year earlier. Average asking rents peaked at $23.57 three years earlier.

Owners of less-than-prime sites need to be more aggressive in making their buildings appealing to new tenants, Mr. Oliff says. But even after sprucing up a building, landlords are encountering steep demands. “You want to keep the existing tenants who are doing well in your center,” Mr. Oliff says. “The best tenant is the one you have. The difficulty is, tenants are asking for a lot of free rent and tenant improvements. You do your analysis, and in some cases your payback isn’t justified.”

“We’re heading in the right direction, but more slowly than we were earlier in the year,” Mr. Parrott says. “People were much more exuberant earlier in the year, and now it seems more tempered.”
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