While the Chicago area’s best shopping centers have been able to keep their anchor spaces filled, middle- and low-tier malls are having a harder time landing major tenants, accounting for a 20 percent drop in average anchor rents this year.
Average anchor rents dropped to $8.42 per square foot from $10.59 last year, even though the amount of anchor space available remained flat at 8.9 million square feet, according to a recent analysis of retail anchor leasing by commercial retail brokerage CBRE.
Rents declined largely because anchor space in the more expensive Class A malls -- the most desirable malls judged by the quality of their location, tenants and configuration -- has been snapped up, leaving the cheaper Class B and C anchor spaces on the market, said CBRE's senior vice president of retail services Joe Parrott, the report’s author.
“It’s a polarized market,” Parrott said. “If you own a C property, things are tougher than ever. If you own a B category you’re trying to work your way into that A category and not lose another anchor and slip into that C.”
Prior to the recession, retailers would take a chance on an area that they expected to grow into a hotter market, but post-recession “retailers are looking at those submarkets and realizing the growth is not there and not coming fast,” Parrott said.
“Retailers increasingly are more sophisticated and able to identify what sub-markets will lead to the best sales, and they want to pursue the markets where retailers are performing well,” Parrott said.
Six out of the 56 sub-markets in Parrott’s study accounted for 34 percent of the overall available anchor space -- that is, they are having the hardest time finding anchor tenants. Matteson, Calumet City/Lansing, West Dundee, Bloomingdale and Crystal Lake all face competition from high-performing sub-markets nearby and have been struggling for years, Parrott said.
Deerfield/Northbrook fell into the struggling six because a number of retailers moved out at the same time by coincidence, Parrott said, and he doesn’t see the vacancies as a long-term problem for those suburbs.
Lower-tier Class C malls tend to suffer when companies close individual stores as leases expire, as retailers such as Sears, Target and J.C. Penney have been doing.
Class A malls tend to struggle when companies close their entire chain of stores, such as in 2008 when Circuit City, Value City and Wickes Furniture declared bankruptcy, Parrott said.
Grocery stores dominated retail anchor activity this year after Dominick’s closed all 72 of its Chicago-area stores in December and other grocers -- led by Mariano’s, Whole Foods and Jewel-Osco -- took over the choicest spots, mostly in urban and dense suburban markets. Grocery activity is expected to slow now that the best locations have been picked over, but if Dominick’s parent company Safeway, recently acquired by private equity firm Cerberus Capital Management, hews to current market conditions, some of the vacant properties could be opportunities for non-grocery anchors, the report said.
For example, home furnishings stores such as Art Van Furniture, Ashley Furniture Industries and The Great Escape are “back in major expansion mode” after that industry came to a screeching halt during the recession, Parrott said. Fashion retailers, such as Ross Stores, Nordstrom Rack and DSW, also are continuing to open more stores.