This article originally appeared on CoStar Insight. It has been republished with permission.

Chicago’s retail market is once again posting its tightest conditions on record, marking six consecutive quarters of high occupancy rates.

Chicago has continually busted its third-quarter 2018 previous occupancy-rate high of 94.4% to stand at 95.2% near the end of this year’s first quarter.

The real miracle across the Chicago metropolitan area is how the retail market did not crash after Illinois’ shelter-in-place orders, in which residents had limited access to shop and socialize outside of their homes at the beginning of the pandemic. In fact, its average occupancy rate was 94.2% from 2020 through 2022, 200 basis points higher than the first three years after the Great Recession.

Chicago avoided those perils through a couple of moves. It set the stage for its most recent retail successes through its continual drop in construction starts that began in 2014 and coincided with over 20.3 million square feet of demolished retail space removed from the market.

So, despite lackluster leasing since the onset of the pandemic, Chicago’s retail market has found a new balance through space redevelopment and reuse. For example, redevelopers for regional malls such as Old Orchard in Skokie and Fox Valley in Aurora tore down functionally obsolete anchors such as Sears and Bloomingdale’s and replaced them with multifamily properties.

Historically, retail bankruptcies are the primary driver of store closures, and Chicago has seen its fair share with almost 500,000 square feet of recent and future move-outs from Bed Bath & Beyond alone. While weakness in specific segments could contribute to an increase in move-outs in the year ahead, the overall risk from bankruptcy-related closures is low.

The recently announced bankruptcy of Joann Fabrics could affect Chicago with its 21 store locations, more than any other metropolitan area. Future tenant move-outs may be in store for this retailer. Yet, with an average footprint of 20,000 square feet and stores evenly spread across the entire region, there is unlikely to be a significant fallout from the fabric store vacating the Chicago area.

In addition, as the Bed Bath and Beyond portfolio liquidation demonstrated, plenty of demand exists for 15,000- to 25,000-square-foot box sizes. For example, bookseller Barnes & Noble aims to open four new Chicago-area locations with an average 16,000-square-foot store size.

This article also appeared in the May/June 2024 issue of BID Magazine, spotlighting Chicago. Interested in additional market insights and updates? Download your free copy here!