Empty stores, buildings have a chance later this year

The intersection of Arlington Heights and Rand roads is a suburban shopping epicenter, with retail hubs fanning out from all four corners.

But the Arlington Heights crossroads is pockmarked with empty stores: a former Circuit City on one side, an empty Kmart and Sports Authority on another.

That scene is repeated many times around the suburbs as a result of a brutal recession that forced cutbacks, consolidations and bankruptcies. Towns are left to deal with lost sales tax revenue and related income while seeking to fill these vacant buildings.

More bad news came last week with the bankruptcy of Borders, which is closing book stores in Mount Prospect, Crystal Lake, St. Charles and McHenry; eviction notices to some Blockbuster locations; and another bankruptcy for Giordano's pizza, though restaurants are remaining open.

Yet, lower lease rates and property values in the recession's aftermath now offer a launchpad for economic redevelopment, experts say.

Thanks to leasing incentives from property owners and active suburban chambers of commerce that offer fresh networking opportunities, some suburbs are finally seeing new suitors.

Whether that translates into actual deals for new tenants and a chance to reduce double-digit vacancy rates is yet to be seen, experts said.

“A lot of these companies have a built-in radar,” said Ellen Divita, economic development director for Geneva. “They find the empty stores and the property owners work with them.”

Some suburban officials said they've had 10 percent to 30 percent commercial vacancy rates.

For example, 28 of 36 Circuit City sites that became empty between 2008 and 2009 were still on the Chicago and suburban market in mid-2010. But Indianapolis-based electronics retailer HHGregg is expected to pick up some of those sites sometime this fall, when it expects to open 20 stores in the area, with locations already announced in Schaumburg, Vernon Hills and Niles.

Also, 207 retail anchor spaces bigger than 20,000 square feet were on the market, down from 227 in 2009, yet still considerably higher than 102 in 2004, according to data from CB Richard Ellis, a major commercial real estate firm.

Still, new retailers have entered the market, including Savers, Gordmans, Ross Dress for Less and SuitHouse, the firm said in a report.

Four national retailers have been looking at the long-empty CompUSA store on Randall Road in Geneva, said Divita, who declined to name the retailers until a deal is made.

“We're picking up what we're seeing a lot of nationwide,” Divita said. “They're trying to grab the low leases.”

Divita, along with other economic development leaders around the suburbs, have been matching up property owners or managers to eager companies. Incentives, including teaser rents in exchange for longer term leases, often are used to woo these prospective tenants, experts said.

Lake Zurich also has been hit with double-digit vacancies with both retail and industrial buildings. Still, there are recent bright spots.

A report presented to town officials Feb. 7 outlined 10 new industrial occupancies along with numerous build-outs or remodeling projects, as well as 33 new commercial occupancies.

By the fourth quarter of 2010, the vacancy rate fell to 12.6 percent, from 13.7 percent the previous quarter. Despite the advances, the rate was higher than the overall Chicago area's 11.9 percent vacancy rate, the report said.

The biggest thorns in the side of Lake Zurich officials have been the empty Kmart and a Wickes Furniture building, which was occupied again briefly and is now vacant again. Without those two massive buildings, Lake Zurich would have a 5.4 percent vacancy rate, said Vijay Gadde, planning manager for Lake Zurich.

He and his team have actively been talking with property owners, encouraging plans for property facelifts, and attending trade shows to network and build contacts to help woo potential tenants.

“Retail has been picking up, but the industrial buildings are the challenge,” Gadde said. “They're different and older buildings. They're expensive to retrofit.”

Batavia also has been hit with vacancies resulting from bankruptcies, such as Wickes and Circuit City, and those sites have remained vacant since 2008 along Randall Road. But property owners continue to pay property taxes on each site, said Meredith Hannah, economic development analyst for Batavia.

In all, Batavia has seen a 20 percent decrease in vacant square footage on Randall Road since 2009. Some of the new stores that have opened there include Smashburger, R Kids Closet, Dunkin' Donuts, Honey James Cafe and Delnor Express Care, she said.

“In 2009, the city revamped its entire zoning ordinance to allow for more flexible uses of those properties that may help the property owners in enticing businesses to locate in Batavia,” she said.

Major retailers that abandoned a site don't always own the building. For example, Oak Brook-based Dominick's Finer Foods spokeswoman Wynona Redmond said the company no longer holds leases on its vacant stores in Rolling Meadows or St. Charles. But it is looking for a tenant to sublease in Wauconda. She did not answer other questions related to the search or the property.

Still, companies have been encouraged by reports that consumers are spending more and job losses have slowed, said John Melaniphy Sr., president of Melaniphy and Associates, a Chicago-based retail analysis firm.

“So far, 2011 has been starting to pick up a little bit, but there's no herd mentality,” said Melaniphy.

Later this year and next year are expected to bring more tenants to some of those empty buildings, he said.

But perhaps not all of them, he said, noting that 2004 through 2007 had “unusually explosive retail sales.

“Those years saw a lot of growth among retailers,” Melaniphy said. “Now we're paying for it.”