Long associated with gleaming office buildings, retail and throngs of workers and tourists, changes could be in store for downtown Chicago as it works to regain some of the bustle it lost during the COVID-19 pandemic.
Empty offices and closed storefronts have put the vibrancy of downtown Chicago at stake. Almost 18% of downtown office space was vacant at the end of 2021, according to commercial real estate firm CBRE. The closure of major retailers along the Magnificent Mile, such as Macy’s and Gap, left massive holes in the city’s best-known shopping district.
Office use and shopping habits were changing long before the pandemic, but were exacerbated by COVID-19 shutdowns. As the city tries to emerge from the pandemic, downtown faces myriad challenges: a changing office landscape in the Loop, a decline in retail activity along the Magnificent Mile, concerns about crime.
Meeting those challenges could mean changes that reshape the face of downtown, according to real estate experts, researchers and neighborhood groups. Old office buildings could be converted into housing. Michigan Avenue is looking beyond retail to more experiential options. Local businesses might have more chances to expand downtown.
In one sign of that change, Hubbard Street Dance Chicago recently moved into an old Adidas store on the fourth floor of Water Tower Place. Adidas is now located elsewhere in the mall.
Hubbard Street Executive Director David McDermott sees the neighborhood’s boutiques, universities, hospitals, cultural institutions and nearby beach as anchors that will keep it durable.
“I think we’ll continue to see a diversification of tenants along North Michigan Avenue,” he said. “And we’re happy to be kind of at the leading edge of that.”
Getting there will require bringing people downtown. There were upticks in pedestrian traffic before the omicron wave, but with fewer office workers around and amid rising worries about crime, employers, store owners and landlords are eyeing creative options.
A makeover for old offices
Real estate experts and landlords aren’t worried about companies deserting the urban core, but as the need for office space changes, so does the outlook for downtown. Fulton Market, which at one point seemed overbuilt, is now in demand, thanks to its newer, amenity-heavy buildings, said CBRE Vice Chairman Todd Lippman. Dated buildings in the heart of the Loop, however, are struggling.
“I see a lot of pressure on those buildings, and I don’t know that all will come out in good shape,” he said. “I do think there will be repurposing.”
Office vacancy at the end of 2021 in the central business district, which includes the Loop, Fulton Market and River North areas, ticked slightly down for the first time during the pandemic, according to CBRE. More space was available to sublease than in either of the two prior years, but growth in sublease space was slowing, the firm said.
Companies want space in new office buildings with plenty of amenities to entice workers back, such as cafes, entertainment spaces or fitness centers, said Jack O’Brien, principal of Chicago-based real estate services firm The Telos Group. While many renovations were underway before the pandemic, some were adjusted to emphasize outdoor environments. That includes the Old Post Office, where a roof deck got additional seating.
For older, less desirable office buildings, conversions to housing could be a path forward.
That is one option under consideration for a historic office building at 36 W. Randolph St.. With little space to add amenities and working around the building’s landmarked status, a conversion to small apartments, shared living or a hotel would be most efficient, said Steven DeGraff, who is part of the group that owns the building.
The rent the building could generate from an office tenant wouldn’t justify the construction costs of retrofitting it, he said.
“There is a lot of need for housing, and that continues,” DeGraff said. “And location-wise, you’re right in the central business district, (where) you don’t have a tremendous amount of apartments yet. So it’s really the market that dictates that.”
A shift toward housing had started before the pandemic. The share of space in Chicago’s central business district devoted to offices shrank from 79% in 2011 to just under 75% earlier in 2021, while multifamily housing grew from 9% to 16%, according to CoStar data.
Meanwhile, Chicago’s downtown grew faster than any of the country’s other large metro areas between 1980 and 2018, swelling from just over 18,000 residents to more than 110,000, according to a 2020 report by the Brookings Institution.
With new housing comes demand for services for residents, such as day cares, schools and gyms. Those can also serve as new uses for old office buildings, said Tracy Loh, a fellow at the Brookings Institution who co-authored a report on downtowns’ recovery from the pandemic last year.
The conversions come with caveats. Residential buildings are likely to generate less tax revenue than a commercial space would, Loh said. And construction could be challenging — for example, some old buildings lack bathrooms on each floor, said Michael Edwards, president and CEO of the Chicago Loop Alliance.
Still, Edwards sees conversions as one viable option for downtown. The Loop Alliance is championing alternative funding, such as tax credits, to help make them successful.
Opportunities for local shops
As office tenants seek buildings with amenities, landlords have a big incentive to fill retail and restaurant vacancies left by the pandemic, especially when they’re trying to get workers excited about returning, said John Vance, principal at Stone Real Estate.
There were 208 more empty storefronts in the Loop in mid-2021 than in 2019, a Stone Real Estate report found. Restaurants accounted for 44% of the newly empty space, and apparel stores made up 16%.
That could give local businesses an opportunity to expand, just as small businesses expanded in the aftermath of the 2008 financial crisis when big chains were more cautious, said Greg Kirsch, executive managing director and Midwest retail leader for Cushman & Wakefield.
“Money’s cheap, it’s easy to get a loan, and there are entrepreneurs who want to get out there,” he said.
Willis Tower, where about 85% of office space is leased, was already planning to focus on “uniquely Chicago” businesses with a redevelopment that started in 2017 and added 300,000 square feet of retail space, along with other new amenities, said David Moore, senior vice president and portfolio director of building owner EQ Office.
That included national brands such as Shake Shack, Sweetgreen and Starbucks, but also local names such as Rick Bayless’ Tortazo, Lettuce Entertain You’s Sushi-san, Do-Rite Donuts & Chicken and, soon, Kindling, a new restaurant from the Fifty/50 Restaurant Group. Much of the leasing took place pre-pandemic, but interest has remained throughout, he said.
Fifty/50 had been in talks with Willis Tower’s owners about opening a breakfast spot in the skyscraper before the pandemic but conversations stalled until the fall of 2020, when the building owners reached back out with an opportunity for a full-service restaurant with an outdoor terrace, said co-owner Scott Weiner.
Weiner thinks downtown building owners’ interest in local concepts predates the pandemic, pointing to food halls such as Revival, and said he thinks the neighborhood has “amazing opportunities,” even with uncertainty about how the pandemic will affect foot traffic.
“Even when Willis is 20% occupied, it still has more people than most buildings in Chicago, and there’s a weekend crowd,” he said.
Still, landlords and prospective retail or restaurant tenants may need to get creative as long as hybrid and remote work could affect the customer base, Vance said. That could mean basing rents on a percentage of a retailer’s sales instead of a flat rate, he said.
Elsewhere in the Loop, Edwards thinks there is a future for retail that is heavy on the experience for shoppers. That could go hand in hand with a shift toward more residential buildings, because a growing population downtown would mean more residents nearby to patronize different kinds of stores, he said.
“When we all used to work downtown, we’d all stay in our neighborhood because we were tired of going downtown,” Edwards said. “Well, now everyone is in their neighborhood, in their house, around their street, so downtown is becoming much more of a destination on a weekend.”
One damper, though, has been the perception of crime downtown.
In the first three weeks of the year, 600 complaints of crimes including burglaries, motor vehicle thefts and violent crimes were reported in the police districts that include downtown and other surrounding neighborhoods, according to preliminary Chicago police data. That was up from 412 in the first weeks of 2020.
The Loop Alliance has long had safety patrols on State Street during the day and in recent months hired unarmed security to walk the area after 11 p.m. That was partly in response to complaints that restaurants and bars were having a hard time hiring employees who didn’t feel comfortable walking to or from work late at night, Edwards said.
“Downtown cannot be successful until we can restore customer confidence in their experience when they come downtown, it can be predictable” he said. “And right now, it’s not as predictable as we’d like it to be, both on the pandemic side and on the consumer confidence side, feeling safe,” he said.
A few blocks north along Michigan Avenue, addressing crime such as smash-and-grab robberies and carjackings are a key priority for the Magnificent Mile Association, said President and CEO Kimberly Bares. Many retailers in the area have hired private security, she said.
A new special taxing district on properties in the area will send about 70% of the funds raised toward safety and security measures, such as “ambassadors” walking the avenue and surveillance cameras, she said.
The association is also urging tougher prosecution and sentencing for repeat offenders, Bares said.
Changes on the Mag Mile
There were positive signs for North Michigan Avenue in December. Traffic counters in the 400 block recorded more pedestrians than in the same month pre-pandemic, according to the Magnificent Mile Association.
But the high-end retail district is grappling with a shift in how people shop that was exacerbated by the pandemic, and has left large vacancies at the Water Tower Place mall and elsewhere along the street. A panel organized by the Urban Land Institute, working with the city and the Magnificent Mile Association, set out to study solutions for the corridor.
“Shopping and retail has changed,” said Swasti Shah, director of community engagement for ULI Chicago. “It cannot be just relying on big retail brands and flagship stores.”
Among the panel’s recommendations were to create more places for people to gather and a focus on experiences, such as the Dr. Seuss Experience at Water Tower Place or The Office Experience at the Shops at North Bridge. Walkability to tourist destinations such as Navy Pier could be improved. Focusing on local retailers could give people a reason to visit, Shah said.
ULI is also convening a panel to study LaSalle Street in the Loop.
Retail will likely always have some presence on Michigan Avenue, Bares said, but experiences could also be part of the avenue’s future. In addition to pop-ups, including The Office and Dr. Seuss experiences, she pointed to existing stores such as Eataly or the Starbucks Roastery that feature dining.
The Magnificent Mile Association is also looking at more festivals and events, such as the Meet Me On the Mile events in 2021 that closed parts of the street to vehicle traffic.
“In an era where we can buy almost anything we want online, what we can’t buy online is experience,” Bares said. “And to the extent that anyone can match the best product or service with experience, they will be the winner in this new market.”
That shift in focus is in line with Hubbard Street Dance’s recent move to Water Tower.
McDermott said he approached Water Tower’s owner about moving into the space after the dance studio sold its building in 2019. He was drawn to the site after seeing other “experiential” and arts-focused tenants nearby, and to the mall’s accessibility to the public, he said.
“How can we share Hubbard Street with more people, share world-class art with more people?” he said. “I don’t think about it really as a mall. I just think about it as a place to showcase our art.”
