Block 37 among signs of State Street revival
Data show uptick from dismal 2003
By Thomas A. Corfman
Tribune staff reporter
Published October 12, 2004
The Daley administration and Mills Corp. have reached an agreement on a sale of Block 37 to the Arlington, Va.-based real estate company, a sign that State Street is poised for a rebound after a lackluster year.
The deal sets the stage for construction to begin early next year on a mixed-use project that would include 400,000 square feet of retail space to be completed by fall 2007.
Meanwhile, the college bookstore sister company of Barnes & Noble Inc. is in talks with DePaul University to open one of its superstores in the DePaul Center, 333 S. State St., a former Goldblatt's Department Store, a university spokeswoman confirms.
Often considered a potential tenant for Block 37, Barnes & Noble would instead give a badly needed boost to the south end of the city's historic shopping district. A 43,000-square-foot prototype of the new store concept, which debuted last fall near Georgia Tech in Atlanta, is geared to off-campus customers by providing a wide selection of books and music, in addition to college texts.
The Block 37 agreement and the Barnes & Noble talks are key signs that State Street is recovering from a dismal 2003, when the vacancy rate reached the highest level since the 1980s, an era known for department store defections and a stifling pedestrian mall.
The vacancy rate among smaller specialty stores has declined to 21 percent from nearly 25 percent a year ago, according to an annual study by Northern Realty Group Ltd., a retail real estate and development firm.
The retail real estate market along State Street has a long way to go to reach a vacancy rate of 4.5 percent, the level just three years ago. Yet the new round of interest among retailers is partly due to an expectation that Block 37 may be moving forward, making nearby space more desirable.
On Tuesday, the city agency that reviews development deals in tax-increment financing districts is scheduled to consider a proposal by the city to sell the site to Mills, according to the agency's agenda.
The price and structure of the deal could not be determined. A Mills spokeswoman declined to comment. A Planning Department spokesman could not be reached for comment.
At the southwest corner of the site would be an office building anchored by the studios and offices of WBBM-Ch. 2, a deal that has been under negotiation for nearly 18 months. The building is scheduled to be completed in June 2007, sources said. The base of the three-tower complex, which includes the retail space, is expected to be completed that fall, sources said.
But State Street also has a momentum separate from that slow-moving project, as retailers look to take advantage of the street's growing collection of fashion stores targeting younger, budget-minded shoppers.
Most recently, Urban Outfitters Inc. signed a letter of intent to lease 12,000 square feet in the former Toys "R" Us store, 10 S. State St., which is being divided into separate stores, real estate industry sources said.
Other trendy merchants also are scouting the street, such as shoe company Steven Madden Ltd. and clothier Ann Taylor Loft, real estate industry sources said, as well as more mundane retailers, such as discounter DSW Shoe Warehouse.
"I think retailers are taking a second look at State Street when they see the phenomenal success of stores such as Forever 21," said Michael Shields, an executive vice president with Northern Realty, which is handling leasing for the former Toys "R" Us store. He declined to comment on potential tenants for that building, where sources say Office Depot Inc. recently signed a letter of intent for about 20,000 square feet.
Forever 21, a women's apparel store, opened in January at 34 S. State St., not far from Hennes & Mauritz LP, known as H&M, which opened a store at 20 N. State St. the following month.
But the drop in the proportion of empty storefronts isn't just the result of a sudden surge in leasing. Demand for space, as measured by net absorption, actually declined by nearly 16,000 square feet during the last year, compared with an increase of 68,007 square feet the year before. Net absorption is the change in the amount of leased and occupied space.
Landlords have cut by 6.5 percent, to about 1 million square feet, the total space for shops that focus on a single category of goods, called specialty stores. Some difficult-to-lease spaces are being converted to other uses, thereby reducing the amount of available space.
The study tracks vacancy rates and asking rents for an area that includes State Street and Wabash Avenue and stretches from Wacker Drive to Congress Parkway.
Only shops larger than 2,500 square feet with street entrances are included. When the fully leased department stores are factored in, the vacancy rate fell to 7.3 percent from 9 percent.
Staples Inc. recently signed the largest deal of the last 12 months. It has leased nearly 20,000 square feet in the Garland Building, said Patrick Caruso, president and chief executive of L.J. Sheridan & Co., which handles leasing for the building at 111 N. Wabash St.
Staples would partially replace a shuttered 47,200-square-foot, multilevel store once occupied by menswear retailer Syms Corp. The Garland Building's owners are now considering converting the upper-floor space to offices, Caruso said.
Meanwhile, the shift toward trendy, moderately priced retailers may be a key to the street's revival.
"For a long time, State Street merchants were holding on to the idea that State Street could be like North Michigan Avenue, and that could never be true," said developer Bill Smith, president of Chicago-based Smithfield Properties LLC.
In January, the firm plans to start marketing units in a 32-story condominium tower at 151 N. State St. that will include about 37,000 square feet of retail space.
"State Street has to find its own niche," he said.