Retail Markets in Focus: Chicago

Chicago led all U.S. markets in net absorption of retail space in H1 2023. A strong recovery in restaurant traffic and a relatively affluent population base are two key drivers of Chicago’s attractiveness to retailers, contributing to its retail renaissance.

The U.S.’s Top Market for Retail Absorption

Almost 1.7 million sq. ft. of retail space has been absorbed in Chicago in H1 2023. Retail availability sits at 6.8% as of Q2 2023, its lowest level since 2005. Availability has fallen by 50 basis points (bps) year-over-year. Since Q2 2020, availability has fallen 230 bps. This comes at a time when retail construction activity has been historically low. There were new record-lows in new retail supply in 2021 and 2022 in Chicago, with 2023 on pace for another new low in construction, which will help keep supply and demand balanced.

Figure 1: Top Ten U.S. Markets in YTD Retail Net Absorption

Source: CBRE Econometric Advisors, Q2 2023.

Is “The Bear” Partly Responsible for Chicago’s Restaurant Rebound?

Chicago, like several U.S. gateway cities, is experiencing a surge in restaurant diners. Chicago restaurant dining increased by 7.6% over the first seven months of 2023, well above the U.S. average of 1.1% and sixth among large U.S. restaurant markets, according to OpenTable. The city’s restaurant scene may be enjoying a boost from the hit television series “The Bear,” which was the U.S.’s most-watched show the week following its season two release and has a 99% approval rating on Rotten Tomatoes.

Chicago has long been known as a prime location for restaurants. It ranked sixth on Food & Wine’s Top 10 U.S. Food Cities list for 2023 and Conde Nast Traveler has previously named it a Best Restaurant City. Twenty-five local restaurants earned Michelin stars or James Beard Awards this year.

Figure 2: Year-over-Year Change in Seated Diners at Restaurants, YTD

Note: Compares Jan-July 2023 with Jan-July 2022.
Source: OpenTable, CBRE Research, Q3 2023.

Wealth Remains in the Region

The Chicago metro area continues to be a relatively affluent community, ranking fourth in the U.S. in investment income last year. This makes Chicago attractive to luxury retailers located on Michigan Avenue and emerging districts such as the Fulton Market in the West Loop. Already a long-established home to brands like Neiman Marcus, Chicago has seen recent additions or expansions of Richard Mille, Balenciaga, Goyard, IWC, Panerai, Cartier, CAMP, Rivian and Rowan. Additionally, rents range 50-67% lower than coastal peers such as Manhattan, Miami and Los Angeles, according to CBRE’s Econometrics Advisors.

Figure 3: Top U.S. Markets for Investment Income, 2022

Note: Investment income refers to income from rent, dividends and interest in millions of USD.
Source: Oxford Economics, Q3 2023.

Looking Ahead

Chicago has rebounded from the Covid-induced hardships of 2020 and will remain a hub of wealth and business. Retail availability will continue declining as retailers expand into prime space and follow in-city migration trends to emerging districts. This heightened activity will drive the retail real estate market this year and beyond, sustaining positive asking rent growth.