Despite challenges, next 24 months poised for growth
MODEST GROWTH IN 2011
2011 was a fair year for the commercial real estate industry. While the state of the industry hasn't quite rebounded to a pre-2008 standard, "In our world, business could have been worse," is the common consensus within the commercial brokerage community.
Melaniphy's 2011 3rd Quarter Chicagoland Retail Sales Report calculates retail sales have improved 6.25% over 2nd quarter, with the majority of growth occurring in general merchandise, grocery, dining and auto retail. Additional statistics show consumer electronics are lower, as is home improvement. 4th quarter showed most retailers enjoyed increases in same store sales.
Despite this growth, the industry remains fragile. Inherent weakness in home improvement, furnishings and electronics exemplify persistent instability in our national housing sector. Prospects remain poor until there is sustained, broad based, residential recovery.
RETAIL ACTIVITY IN CHICAGO SHOWS SOME GROWTH
In 2011 there was significant absorption of vacant "box" retail space. Operators such as Ross Stores, Wal Mart Express, Meijer, independent grocers, and health and strength operators (like Planet Fitness) expanded into second generation store space. With net absorption, a demand may be emerging for new development. However, those prospects are threatened by the possible reduction of Best Buy's store area from 45,000 to 25,000 square feet and the potential shuttering of Sears and Kmart stores throwing additional inventory onto the market. Food operators, premium hamburger concepts, and quick service operators are aggressively expanding. Discounters Dollar Tree and Cash America are very active. Cellular stores, such as T-Mobile and Verizon, continue to pay premium rent to compete for better space. Chase and other lenders continue to expand. This growth is obviously positive, yet it embodies infilling and adaption of existing space, creating marginal real growth.
RENTS REMAIN DEPRESSED
Viable urban "A" submarkets such as Michigan Avenue, Gold Coast, Clybourn, Andersonville and Southport continue to reflect strong occupancy with minimal or no rental decrease. "A" grade suburban markets (centers with viable in-line tenancy and multi-tenant outlots) are enjoying increased income from new tenancy and minimal vacancy periods. Moderate suburban markets with less than competitive centers are suffering. There is little opportunity to compete for credible tenancy and rents remain depressed.
GROWTH IN RECEIVERSHIP & REO
Our company has experienced significant growth in our receivership and REO business- a positive indicator that the mass of commercial properties, attached by lenders, are being disposed at a greater rate than in the previous two years. We predict accelerated REO and receivership activity this year and next, stimulating investment activity.
HIRING & OFFICE SPACE ACTIVITY UP IN CITY
Occupancy rates continue to improve in Chicago but remain relatively low in many suburban markets. There has been increased activity in our tenant representation business including employment agencies. These firms report that numerous business categories have increased hiring for the new year- a positive sign.
We have enjoyed excellent activity and success leasing small to moderate size class "C" office space in the Loop.
LOOKING AHEADHow do we interpret this activity? I am more optimistic than I have been since 2008. Absorption and retail store expansion, although confined to better markets, is encouraging. Improved retail sales, office market expansion, a more liberal lending mentality, and growth in receivership and REO indicate elevated business opportunities over the next 24 months.
>>MANAGEMENT &ADVISORY SERVICES