Among the tenants that decided not to re-open their stores along the Mag Mile were Macy’s, Uniqlo, and the Gap.
Reprinted with permission of Commercial Real Estate Direct:
The retail vacancy rate along the Magnificent Mile, a well-known shopping district in downtown Chicago, was 9.3 percent in the fourth quarter, according to CoStar data compiled by Cushman & Wakefield.
That’s up from 5.9 percent a year earlier and nearly triple the 3.3 percent rate in the fourth quarter of 2019, before the onset of the coronavirus pandemic. The skyrocketing vacancy rate in the area compares to Chicago’s overall vacancy rate, which actually has improved, to 9 percent in the fourth quarter of 2021, from 9.3 percent the previous year and 9.2 percent in the fourth quarter of 2019.
The retail vacancy rate had increased throughout Chicago, as it did in most cities, as a result of Covid-related restrictions that forced retailers to close their stores – many permanently. But while the overall Chicago market, in terms of vacancy, has rebounded, that hasn’t been the case along the Mag Mile. The culprits: rents and crime.
Retail space along the 2.8 million-square-foot shopping district that sits along North Michigan Avenue averaged $94.14/sf at the end of last year, according to Cushman. The area historically has been a luxury shopping area. Among its tenants: Nordstrom, Patek Philippe, Hugo Boss and Hermes. The area’s rents compare with the $19.15/sf average for the city overall. Most retailers – outside of those in the luxury category – would be reluctant to pay Mag Mile rents.
Among the tenants that decided not to re-open their stores along the Mag Mile were Macy’s, which closed its location at 835 North Michigan, where it had leased 170,000 sf; Uniqlo, which closed its 61,000-sf store at 830 North Michigan; and the Gap, which closed its 49,000-sf store at 555 North Michigan.
The Gap’s departure has had a negative impact on a CMBS transaction that holds a $55.46 million loan against 555 and 545 North Michigan. The loan, securitized through Hamlet Securitization Trust, 2020-CRE1, has been transferred to special servicing because it’s expected to default. When it was underwritten in 2017, the expectation was that rents in the area would climb to $123 and the space void created by Gap’s expected departure would quickly be filled.
The Mag Mile has been plagued by increasing crime and a sharp decline in foot traffic caused by an increasing office vacancy rate. The number of crime complaints in Chicago was 8 percent higher in 2021 than 2020 and the number of crime complaints made during the first few months of this year already was 34 percent greater than all of 2021, according to Chicago Police Department data compiled by BofA Securities’ CMBS research team. So far this year, robbery, for instance, was up 10 percent from last year and thefts were up a staggering 61 percent.
Meanwhile, the area has seen a drop in office workers, which reduces foot traffic. Kastle Systems this week reported that Chicago’s actual office occupancy rate was only 34.6 percent. That’s up 1.1 percentage points from the previous week. And it compares with Chicago’s formal 20.3 percent vacancy rate for the fourth quarter, according to Cushman & Wakefield. That was up from 16.4 percent a year earlier.
Community leaders are making efforts to address the issues. A panel formed by Chicago’s Urban Land Institute recently made several proposals to revive the Mag Mile after noting that Chicago’s sales tax revenue for the zip code that includes the shopping district saw a 23 percent decline in 2020. The panel’s proposal was first reported by Crain’s Chicago Business.
It suggested that the Chicago Police Department should increase its presence in the area, recommended the installation of more security cameras and the launching of a media campaign to convince potential shoppers that the area was safe.
The panel also suggested that developing a plaza for entertainment purposes would encourage more traffic to the area. The proposed site for the plaza would be the Department of Water Management’s service yard and the firehouse, south of 835 North Michigan Ave., right along the Chicago River. Reprinted with permission of Commercial Real Estate Direct.
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