COVER STORY, APRIL 2007

THE REINVENTION OF STATE STREET
Chicago’s historic State Street is being infused with a new generation of retailers.
Jason Berngard and Anthony Campagni

Jason Berngard

As the revered Marshall Field’s department store becomes a Macy’s and the doors of the historic Carson Pirie Scott building close for redevelopment, opportunities to reinvent State Street are opening. Providing a less expensive, yet just as accessible, alternative to Michigan Avenue, the street that once defined Chicago is now being re-established. As Michigan Avenue’s already astronomic rents steadily increase (at the time of writing, rents are in excess of $300 per square foot) and available ground-level retail space on the street is all but non-existent, retailers are looking to State Street as an alternative for their flagship stores and second locations.

With the addition of H&M’s second location, the presence of Urban Outfitters, Annie Sez and Office Depot at 10 S. State Street, as well as the future development of 108 N. State (formerly Block 37) and the redevelopment of the Carson’s building and the Palmer House Hotel, the timing is right to redefine this downtown Chicago shopping district.

Anthony Campagni

Presently, the densely populated street is a mix of retail, office and residential properties. The international recognition and popularity of Millennium Park, which drew more than 3 million visitors in 2006, has sparked interest from diverse retailers such as Segway, Garrett Popcorn Shops and Park Grill Chicago. And while the office market continues to move west, condominiums are becoming popular in the east (where some residential condos with views of Millennium Park are selling in excess of $700 per square foot), transitioning State Street from a 5-day market to a 7-day market, and luring in new retailers and restaurateurs alike. Downtown residential property has experienced an increase in value of $100 per square foot that is attributable to Millennium Park, according to the city of Chicago’s 2005 Economic Impact Report. Evening activity also continues to flourish, with the nearby Theater District nearly doubling its economic impact during the past 7 years, according to the Chicago League of Theaters. Doubling the attendance of 10 years ago, more than 2.4 million Chicago residents attended a live show in the Theater District last year, attracting more restaurants and bars to the area than ever before.

Doubts regarding the potential rebirth of State Street are unfounded. Vacancy rates dropped to 1.37 percent in late 2005, and redevelopments are creating opportunity and interest from an eclectic mix of established, high-profile brands and up-and-coming international retailers. European clothing stores, such as Zara, are considering locations on State Street, giving it a different flavor than the standard high-end retailers Michigan Avenue hosts. For these international retailers, State Street can serve as a test of the American market’s response to their product without incurring the high costs and long waits for retail space on Michigan Avenue.

CBS’s decision to move and use the vitality of the State Street locale as a backdrop for its newscasts illustrates an attempt to become more like its New York City counterparts. Relocating to State Street is a testament to the network’s confidence in the corridor’s unremitting energy and steady foot traffic, almost like that of Times Square. CBS, in turn, will add to the vibrancy and cachet of the street.

In addition, the city’s planned construction of a high-speed rail connection from 108 N. State Street directly to O’Hare International Airport and Midway Airport is advantageous for retailers because it will draw more foot traffic to the street, which was designed for dense travel given its numerous CTA stops and wider sidewalks. Furthermore, the transit system will direct tourists to the corridor often overlooked due to the Magnificent Mile.

Once Joseph Freed & Associates acquires Block 37 from The Mills Corporation, the firm will, in essence, control the fate of State Street, as it also owns the Carson’s building. Freed has the opportunity to redefine this downtown retail corridor, but it will need to secure high-profile anchor tenants and unique (and appealing) small shop tenants to be successful.

Future tenants of the Carson’s building have yet to be named, but it is highly sought after space. The rebirth of State Street is dependent upon signed leases at 108 N. State from brands on the level of Apple, Banana Republic and Coach, all of whom have shown interest in the project. And if space at the Carson’s building becomes occupied by Whole Foods, Target or Best Buy, as is rumored, the street is sure to exceed expectations.

The nearby Palmer House Hotel has already gathered its fair share of big names. Elizabeth Arden’s Red Door Salon is in negotiations to open a flagship location, in addition to tenants such as Aldo, Sketchers and Victoria’s Secret, all of which are sure to garner consumer attention.

Retailers also benefit from the more than 20 colleges and universities within walking distance of State Street’s retail corridor. As many Chicagoans and tourists want to avoid the mayhem of Michigan Avenue, retailers have an opportunity to cater to tourists, students, workers and area residents alike. According to the city’s Economic Impact Report, over the next 10 years, sales revenue from visitor spending in the downtown area is projected to be between $1.9 and $2.6 billion. Retailers should be encouraged by the massive amount of money concentrated in such a relatively small geographic vicinity.

The oft seen “herd mentality” of commercial real estate, especially as it pertains to high-profile and well-known retailers, is something that can be expected as developments on State Street continue to progress; as one big name enters the market, others are sure to follow. Retailers view State Street as a high-traffic shopping destination, less precarious than Michigan Avenue and still close enough to benefit from the ever-profitable Magnificent Mile. The redevelopment of the Carson Pirie Scott building, 108 N. State Street and the Palmer House Hotel place State Street in a position to attract exciting retailers and brand itself to live up to its moniker: State Street, that Great Street.

Jason Berngard and Anthony Campagni are both commercial real estate brokers at Chicago-based Baum Realty Group Inc.


©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.




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