Low interest rates and stable rents have fueled a steady increase in’s retail property values, says a recently released report from Encino, Calif.-based Marcus & Millichap.
"Cautious optimism defines the 2003 Chicago retail outlook, with positive employment growth, decreasing vacancies and moderate appreciation in rents expected," says Greg Moyer, senior vice president andmanager of Marcus & Millichap’s Chicago office.
According to the report, average rents rose 1.5 % through the first nine months of this year, despite sluggish job growth.
Third-quarter employment in Chicago was off by slightly more than 1% when compared with the same period last year, while thesector avoided a net job loss. Total employment in the third quarter of 2002 was only 1.5% below its pre-Sept. 11 levels Employment for the region is expected to grow 1.8% in 2003, though employers remain reluctant to begin rehiring until the economy has strengthened.
According to the report, early indications suggest that metro-wide average rents could increase by 2.5% by the end of this year.
Chicago’s retail vacancy rate rose to 11.8% in the third quarter, due to fewer Chicago-area retailers seeking new space, coupled with the addition of new supply. On a bright note, however, nontraditional users have begun to take down available second-generation retail space, says the report.
Improving market fundamentals will spur shopping center sales in 2003. Long-term, improving fundamentals should support "meaningful" appreciation in values.
The report predicts that investors will continue to pursue single-tenant, net-opportunities throughout the Chicago-land area, despite a lack of available product and increased scrutiny of tenant credit.