North Michigan Avenue seems a little less magnificent lately.
Retail rents fell in 2018 after soaring in recent years, and Chicago's undisputed top shopping destination has faced a long slog in filling high-rent flagship spaces.
The Magnificent Mile's transition is indicative of a broader trend, as "high streets" – the world's most prestigious places to buy and sell goods – grapple with massive changes in consumer habits.
The explosive growth of e-commerce and waves of retailer bankruptcies, combined with rents that skyrocketed in recent years coming out of a recession, have pummeled streets known for huge, attention-grabbing spaces. Experts say streets like North Michigan Avenue won't be knocked from their perch as the go-to destinations for retailers and consumers alike, and there already are signs of the Mag Mile bouncing back after a couple of years of slow leasing.
"We've been an owner of Michigan Avenue retail space since the 1970s and we've seen a lot of cycles," said developer Lee Golub of Chicago-based Golub & Co., whose current investments include the ongoing Tribune Tower redevelopment. "Right now you have some spaces that are available. But the need for retail and the need to be on Michigan Avenue, I don't see that going away."
Completed leases for marquee spaces on North Michigan Avenue averaged $450 per square foot in 2018, down from $550 the previous two years, according to commercial real estate brokerage Cushman & Wakefield. The area surveyed was between the Chicago River and Oak Street.
Streets like New York's Fifth Avenue and Miami's Lincoln Road also are feeling the pinch.
"North Michigan Avenue, like many retail corridors in the country where most of the properties are flagship spaces, has been hit particularly hard," said Chris Conlon, chief operating officer of Acadia Realty Trust, which owns three properties on the avenue. "Large-format stores, it appears to us, are the last to move. Those large-format stores up and down North Michigan Avenue have struggled to find their footing."
Manhattan's Fifth Avenue, one of the priciest retail streets in the world, has seen asking rents for the highest-quality spaces fall 11% since prices peaked in the first quarter of 2017, The Wall Street Journal reported in May.
Other top shopping locales, such as San Francisco's Union Square and Rodeo Drive in Beverly Hills, Calif., have remained flat, according to the report.
In Chicago, retailers, real estate investors and brokers remain bullish on North Michigan Avenue's long-term prospects, no matter how much the retail world continues to change.
By the end of the year, the avenue is expected to get a caffeine-like jolt when the world's largest Starbucks – a four-level, 43,000-square-foot Roastery – opens in the four-level former Crate & Barrel building at Michigan and Erie Street.
It will be just the third such Starbucks concept in the country, following openings in Seattle and New York.
Farther south, the 20,000-square-foot riverfront Apple store that opened in October 2017 and an ongoing redevelopment of neighboring Tribune Tower into residential condominiums are further reminders of massive investments being made on the avenue. The commitments help offset the sight of big vacancies, including the former multilevel Apple store that remains vacant at 679 N. Michigan.
"We like seeing Apple's store starting right at the river," said Jim Gabel, CEO of Canadian outdoor retailer Roots, which in May opened a two-level store about two blocks away at 605 N. Michigan. "We felt that was sending the right message in terms of people's commitment to Michigan Avenue.
"Starbucks has its new 40,000-square-foot store that's opening a block away from us. That told us that people were making big investments in the street and that, as we are, they're planning to be there long-term."
Massive flagships by some of the world's best-known brands are juxtaposed by the string of large vacancies that have cropped up in recent years, including spaces formerly leased to Garmin, Cole Haan, Harley-Davidson and Tommy Bahama. The latest pending vacancy is by Topshop, set to leave a large space at 830 N. Michigan after its London-based parent company announced plans to close all of its U.S. shops.
Additionally, Acadia is seeking tenants to fill a four-story building at 717 N. Michigan now partially leased to the Disney Store, which is on a short-term lease.
The Rye, N.Y.-based real estate investment trust has found it slow going the past couple of years there, but now is negotiating with a handful of potential tenants, Conlon said.
"The coming of the Starbucks Roastery is very exciting, some retailers are going back on the offensive, and some digitally native companies are seeking first or second spaces" on the avenue, he said. "Up until late last year, it was very quiet" at the Disney building, Conlon said. "Going from zero calls to four or five options is very exciting to us."
In a way, corridors like North Michigan Avenue are victims of their own success. Landlords' expectations rose in recent years along with rents, which eventually topped out. Landlords and tenants have been, in many cases, waiting each other out on new deals.
"High street retail has been a massive outperformer in the last eight years relative to all real estate," said Spencer Levy, chairman of Americas research and a senior economic adviser for Los Angeles-based real estate brokerage CBRE. "Rents have gone up like lightning, and landlords got out over their skis a little bit."
Owners of the best-located spaces held firm on rent prices during the two years that Toronto-based Roots looked at Mag Mile spaces, Gabel said. One aspect of negotiations that changed during that time was landlords' increased willingness to invest in front-end costs such as construction of new space, Gabel said.
Flagship spaces have remained the most difficult to fill, said broker Greg Kirsch, the Midwest retail leader at Cushman & Wakefield.
The Mag Mile has 3.3 million square feet of space combined, about 12% of which is vacant, Kirsch said. Excluding vertical malls such as Water Tower Place, the Shops at North Bridge and 900 North Michigan Shops and department stores such as Nordstrom and Neiman Marcus, about 29% of the remaining space is vacant, he said.
The large presence of department stores and vertical malls sets Michigan Avenue apart from many top streets. Those properties also have fared well during the street's transition.
"We're seeing a lot of churn on Fifth Avenue in New York and Lincoln Road in Miami," Kirsch said. "Because of the strength of the department stores and vertical malls on Michigan Avenue, Chicago is a little more immune to that.
"When you look at the health of the department stores, the vertical malls and the expansion of the market, it's a fundamentally positive story. The challenge is those flagship spaces."
The Tribune Tower remake by Golub and Los Angeles-based CIM Group will reintroduce 47,500 square feet of retail space next year also in need of tenants. If the project succeeds, it has the potential to further anchor the southern tip of the Mag Mile and strengthen the avenue overall.
Preliminary interest in space fronting Michigan Avenue and along Pioneer Court south of the tower has been strong, Golub said. He declined to identify potential tenants, other than to say there are talks to bring back former two-floor tenant Dylan's Candy.
The candy seller is in short-term space at 663 N. Michigan Ave., the former Garmin technology store.
Golub and CIM propose a second phase of the Tribune Tower project that would add the city's second-tallest skyscraper, a 1,422-foot-tall residential and hotel building, behind the landmark structure off Michigan Avenue.
If approved by the city and built, the tower could continue the trend of adding residents and hotel guests to the area, which would mean more customers for restaurants, gyms and other services not typically associated with the Mag Mile.
Smaller deals recently signed on the street include Lou Malnati's planned pizzeria in the Wrigley Building. North of there, the Purple Pig is set to move from its longtime home, to a larger space at 444 N. Michigan. Chick-fil-A plans to take over the Purple Pig's current space at 500 N. Michigan.
"Consumers are demanding experiences, food and a moment in time," Kirsch said. "It's not just about buying things and putting it in a bag anymore."
For many brands, North Michigan Avenue isn't the only place to offer goods or experiences, either.
Just as Chicago's office market has become less centralized, retail's center of gravity is harder to determine in many large cities, CBRE's Levy said.
Along multimillion-dollar homes in Lincoln Park, Armitage Avenue has grown into Chicago's launching pad for primarily online retailers to open a store. Damen and Southport avenues also are thriving on the North Side, and the Fulton Market district west of the Loop continues a rapid emergence as a place for corporate offices, top restaurants and shops.
"We're seeing the proliferation of new high streets and new types of experiences," Levy said. "A high street doesn't have the same pull as it once did. The same could be said about the office market, where areas outside of the CBD (central business district) are also causing stress on rents."
Despite those trends, flagships are still most likely to wind up on North Michigan Avenue, he said.
That was the case with Roots, which explored other locations before picking the Mag Mile. Its new 11,400-square-foot "experience store" is the largest in the company's fleet of more than 220 shops throughout the world, Gabel said.
"Our brand is not just connected to the community, but it's also usually well supported by tourists," Gabel said. "Michigan Avenue has 55 million people who shop the street every year."
The store can accommodate online order pickups and returns, boost brand awareness, and offer personalized leather jackets and other customized orders. On the second floor, a loungelike space will serve as an incubator for local retail startups to test out their concepts for a few weeks at a time.
The large, unique space and volume of foot traffic can't be duplicated elsewhere in Chicago, Gabel said.
"There's the feeling that with retailers going under, there's a surplus of stores," he said. "The reality is, the 'A' stores are always in demand."