Like many downtown main streets, State Street lost its allure, as well as many of its department stores, during the 1960s and 1970s, a time when shoppers voted with their cars for suburban malls.

After several false starts — which included turning the boulevard into a bus-only transit mall in 1979 and de-malling it in the mid 1990s — State Street is showing signs of a rebound. The latest evidence: In the 12-month period ending in October, specialty retailers absorbed 68,007 sq. ft. of space in the State/Wabash corridor, reports Chicago-based Northern Realty Group.

Lured by positive demographic trends, such as a growing residential and student population, national retailers — especially those appealing to the youth market — are setting up shop along State Street, a mile-long swath that parallels Chicago's lakefront from Wacker Drive to Congress Parkway.

Among those new specialty stores is Nordstrom Rack, which opened a 41,000 sq. ft. store in August at the newly redeveloped Woolworth building. Nordstrom wanted a strong presence among its competition, which includes value-priced apparel retailers Old Navy and TJ Maxx.

Although Nordstrom declines to provide details of individual store sales, a company official says the State Street store has “exceeded expectations.” The company averages sales of $319 per sq. ft. nationally.

But State Street's retail momentum has been stunted by a nagging vacancy rate, which rose from 13.9% to 24.2% over the past year. The main reason: 213,557 sq. ft. of specialty store space has been added to the corridor in the last 12 months, including 100,000 sq. ft. of space in the Bank One building on State and Adams.

Does the rising vacancy figure spell trouble for State Street? Mike Shields, executive vice president with Northern Realty, says it's a sign that the street is actually on the cusp of rebirth. “The retail inventory will allow new stores to take their place here.” Specialty store inventory has doubled over the past 14 years from a low of 598,998 sq. ft. to its present high of 1.1 million sq. ft.

Asking rents for specialty stores have fallen 8.4% to $35.97 over the past year, but the decline is due to several properties' multilevel structure, Shields says. Street-level space can exceed $100 per sq. ft., he adds.

In addition to Nordstrom, specialty retailers that appeal to youth are defining State Street as “a hip street,” including Forever 21 and H&M, says Jerry Sider, director of the Greater State Street Council.

One enduring vacancy on State Street is Block 37, the infamous site across from department store Marshall Fields that continues to be an embarrassment to city officials. But there are signs that Block 37 may be transformed. Arlington, Va.-based developer The Mills Corp. says in 2004 it will finalize plans for a CBS studio, a Chicago Transit Authority hub and a retail-entertainment mix. This marks the first time a private developer has invested so much of its own capital, $45 million, says Sider.

“State Street is undergoing a change in its demographics, and the statistics reflect this uneasy time when the neighborhood is changing from a 9-to-5 office locale to 24-hour residential,” says Bill Smith, president of Smithfield Properties, one of the most active developers on State Street. “As more residents move into the area, more goods and services will be needed, and those vacancy rates will drop dramatically.”