Market conditions in the Midwest have been gradually improving, but it’s still an environment where both leasing professionals and property investors have to work hard to make deals happen, according to attendees at ICSC Chicago Deal Making conference, taking place in the Windy City Oct. 3rd and 4th.

“I think people are busy and happy, but part of it may be [in comparison] to two years ago,” says Jeffrey G. Bucaro, senior vice president in the Chicago office of Aries Capital, a national commercial mortgage and real estate investment banking firm.

Due to a combination of limited new development and slowly improving economic conditions, retailers are more actively seeking new locations, according to Daniel Taub, COO of DLC Management Corp., a Tarrytown, N.Y.-based shopping center owner and manager. The challenge lies in the fact that it’s still a tenant’s market. Even when it comes to retailers with whom DLC has existing relationships, rents on renewal leases often involve as much negotiation as those on brand new transactions.

The degree of retailers’ interest in expansion also depends to a large extent on the market in question. While both national and regional chains are fighting for class-A spaces in Chicago’s urban core, interest in the suburbs not immediately surrounding the city has been very subdued, according to Anthony V. Campagni, managing director in the Chicago office of retail brokerage firm RKF. That’s in spite of the fact that in those markets retail space can be gotten at bargain prices.

“Everything is changing,” says Donna M. Hovey, a broker in the Indianapolis office of commercial real estate services firm CBRE. “You don’t have Target, Wal-Mart, Costco opening all these stores anymore. It’s a saturated market.”

As a result, a sizeable portion of new leasing currently happening in markets like metro Indianapolis involves retailers moving from existing locations to newer or more upscale properties. To be sure, new deals are happening. But “you kind of have to make your own rain,” Hovey notes. “You can’t wait for it to come to you.”

Plus, given the number of retailers that tanked during the recession, shopping center developers have become more careful about checking prospective tenants’ financials and same-store sales figures before they sign new leases, according to Ginger L. Benz, operations manager with Cullinan Properties Ltd., a Peoria, Ill.-based development and management firm.

“We want to make sure we are getting tenants that are going to be viable,” Benz says.

Looking to score

Investment firms are also working hard to source new deals, due to limited supply of available properties.

There is no shortage of capital chasing retail assets, and plenty of debt available for acquisition financing, but “there’s a sense that there isn’t enough investment product,” says Daniel A. Kaufman, director with HFF, a Chicago-based commercial real estate capital intermediary.

One conference attendee noted that it’s no longer enough to just call prospective sellers—investors who are serious about making deals have to be out there meeting owners face-to-face as soon as they hear of an asset coming on the market. The competition for desirable retail properties is formidable.

Given record low interest rates, owners are opting to refinance or recapitalize their centers, instead of putting them on the market, because that’s the more profitable option right now, notes Taub, whose firm is currently targeting value-add assets in secondary markets.

In fact, refinancing is the one segment of the marketplace that feels like activity is back to 2007 levels, according to Bucaro.

“As a lender, we are extremely busy,” he says.