• Almost Two-Thirds of Chicago Real Estate Professionals Worried About Rest of 2022

    Nearly two-thirds of Chicago real estate professionals have a negative outlook for the remainder of 2022, as the city faces problems such as crime and the national economy grapples with inflation, rising interest rates and fears of a recession.

    About 65% of the real estate investors, brokers, lenders, academics and other industry professionals who responded to a mid-year sentiment poll described themselves as bearish or “trending toward concern,” about Chicago’s prospects in the second half of 2022.

    A year earlier, 60% described themselves as bullish or optimistic about the market, according to the report by The Real Estate Center at DePaul University and the Urban Land Institute Chicago District Council.

    That cautious outlook was further bolstered by Thursday’s announcement that the nation’s economy had slowed in back-to-back quarters.

    The Chicago view is brighter in the longer term, with almost 51% feeling optimistic or bullish looking ahead to 2023.

    “The view from the top is that real estate is better positioned to weather an inflationary environment,” DePaul’s Rick Sinkuler said in a statement about the report. “There is optimism looking toward 2023 and a belief that a recession will be short-lived.”

    The survey is subjective, based on the perceptions of real estate professionals, and it was conducted before Google this week confirmed plans to buy the James R. Thompson Center, a deal that has the potential to transform the challenged Loop business district.

    But the results provide a window into how the real estate industry views Chicago more than two years into COVID-19, which upended properties such as offices and hotels. It comes at a particularly tricky time, with fears about the national and worldwide economies, supply-chain challenges and the war in Ukraine.

    The report shows that Chicago could face a long path to bringing downtown foot traffic and vibrancy back to pre-pandemic levels. A wide-scale return to the office and increased tourism are needed to support business such as restaurants and bars, and cultural institutions such as museums and the city’s theater district.

    “It’s a larger mission and an ecosystem we need to protect,” office leasing broker Brian Atkinson, a Hines managing director, said in the report. “You feel the vibrancy when people are there. Right now that feeling isn’t a sustained, Monday through Friday occurrence. But it is building.”

    More than 62% of participants in the survey said they expect downtown office vacancy to continue rising through 2023, and more than 67% said there are too many factors to guess when key retail corridors such as Michigan Avenue and State Street will bounce back.

    Women’s clothing retailer Aritzia recently signed the largest lease on the Magnificent Mile in seven years, but there also have been high-profile failures on the city’s best-known shopping avenue, including Brookfield Property Partners walking away from its ownership of the Water Tower Place vertical mall and Macerich handing over its 50% stake in the Shops at North Bridge mall.

    “It starts and ends with crime,” Michael Gold, executive vice president and chief operating officer at retail investor Pine Tree, said in the report. “The city needs to get the crime matter in line for there to be a chance of a downtown retail recovery.”

    Mary Ludgen, head of global research at Heitman, agreed crime or even perceptions of it can hinder investments in the city and even decisions to visit. But she added that Chicagoans tend to view their city harshly compared with other cities.

    “We are our own worst critics; familiarity breeds contempt,” Ludgen said in the report.

    By property sectors, sentiment is most positive for industrial properties, data centers, suburban and downtown apartments and self-storage. Properties seen as most likely to face financial distress are enclosed malls, urban and suburban offices and hotels.

    Highly recognizable buildings such as the Civic Opera Building and the Palmer House Hilton seek new owners after foreclosure suits, as the Loop struggles to overcome the effects of the pandemic and older buildings that have lost tenants to new buildings along the Chicago River and in Fulton Market.

    It’s yet to be seen how much of a ripple effect Google’s Thompson Center deal will have on the Loop’s financial health, but previous moves by the tech giant have helped reshape other areas, including the now-booming Fulton Market district west of the Loop.

    Source: www.CoStar.com