Episode 142: Chicago Real Estate Outlook 2026 with Adrian Brizulea (CoStar)

Adrian

Aaron: [00:00:00] Welcome to the Chicagoland Guide, and I'm your host, Aaron Masliansky. Today we are sitting down with Adrian Brizulea. Adrian is from CoStar. He is basically the Maven on commercial real estate in the Chicago land area. And I got the pleasure to hear you on stage over at the Chicago Association of Realtors Market Outlook event.

Thank you so much for being here today.

Adrian: Oh, thank you so much for having me, Aaron. I really appreciate it.

Aaron: Yeah. So you have a background in economic development we were talking about, and I looked over at your bio. We are fellow, Illini Alum. And I don't know if your program that you did I was in Urban Planning but you did planning, but was that in the business school?

Adrian: No I went to the School of Planning but I specifically focused on economic policy. When I was, during my time there there was a newer concentration that they had opened up. And just given some of the internship experience that I had with the city of Chicago I knew I wanted to go that [00:01:00] route.

It was awesome. And actually, I took a class UP 357 with Rob Kowalski the land development process, and that's what kind of confirmed that I wanted to be within the real estate world. I knew I wanted to be within it in some capacity. I didn't really care what at the time, I wanted to get into development at at first made my way around there.

But yeah, that, that's really what you know what. That course kicked off my interest in the field.

Aaron: That's really cool. Back when I was in school I think you're a little bit younger than I am. But I interned all for the village of Morton Grove in their economic development departments.

Got to learn a lot about it. It's a whole nother realm of. Of planning and everything that goes on. And I think a lot of it is knowing what the businesses are doing and what is important to them. So I'm sure that's factored into what you're doing now from that degree you went on to JLL?

Adrian: Correct. After graduating from the University of Illinois down in Champaign, I've continued at UIC, got my master's there in economic development. And while I was working, or while I was in grad school, I was working full-time with the City of Chicago in [00:02:00] the 10th ward under all the women's students at Lai Garza as an economic developer.

Got, got some experience there and once school wrapped up, I went over to Kretchmar Associates. Which was a, at the time was a small consulting firm up in Evanston that primarily focused on market and feasibility studies for perspective, affordable and senior housing developments, specifically those that were seeking litech credits in the four and 9%.

Got some, got my hands dirty in real estate there. Confirmed that I really wanted to do housing. And then from there I went to JLL and I was at JLL for three years on the capital markets research team, focusing on multifamily investment sales as well as the debt and equity placement teams.

Aaron: What years were you there at

Adrian: JLLI

was at JLL from 2022 to 2025.

Aaron: That must have been an interesting time to be there with everything that was going on. 2022 was still kinda COVID and the markets were just changing so much. What were some of the things that you were seeing then?

Adrian: Yeah, so in 2022 was really interesting.

It was really hard to write a good story about Chicago, who defend Chicago. There was all the headlines were property tax and crime. And [00:03:00] by the time I left JLL that had. Entirely shifted. There were still concerns about property tax and crime, but the fundamentals for Chicago were so great that, some people were, investors were looking past it and we had a lot of interest.

But in 2022 it was really interesting because all the Sunbelt markets, so think the Phoenix is, Austins, Nashvilles of the world. They were exploding. They had a a large supply boom. They had. And they were getting rents or seeing rent growth anywhere from eight to 15%. Oh, wow.

And then you had Chicago whose rent growth was sitting around one point a half to 2%. So we were like kinda like the ugly duckling at the time. But one thing that I learned from this from that experience was that, slow and steady wins the race. And at the time I didn't see it.

And one of the brokers that I worked for, mark Stern, he told, he would always, he would explain to me. Don't worry about it. This wall balance out, this will normalize. We have to, you know what we have to show within the data is that, this is consistency.

This isn't, Chicago isn't a trend. It's, it's consistent. We're well insulated because of we have a diverse economy. We have, there the headlines are our population losses. But, where is the population growing? It's growing in the urban core. Where do we sell buildings?

Mostly in the [00:04:00] urban core. It was a really good, learning experience for me. And, so it, it made me a better researcher. It made me get creative with the data to understand how to tell, a better story that, that focused on trends over a long long time as opposed to trends that were maybe quarterly or, annual. If you take a look now, the, those Sunbelt markets are in the negative rent growth territory. They're still working through that excess of supply that they saw in compare. So if you take a look at, the percent of inventory under construction from 2021 to 2023 Chicago.

Peaked at around 3.2%. The national average during that time was around 5.5%. And then you had your sunbelt markets that had anywhere from 10 to 15% of their inventory under construction. So once all that inventory delivers, it takes some time to absorb. You, no matter how much population growth you have, there's still lease up phases.

You still have to incentivize occupancy in some way, which is. Typically through concessions. So you offer, a free month of rent. You'll offer a, an air fryer, a 55 inch tv, a wide range of things and sense ice occupancy, which at the end of the day does affect bottom line rent growth.

It affects your net operating income. It affects, [00:05:00] the overall value of the property. Very interesting to kinda see where I started as a researcher to, where things are now because it's a totally different world.

Aaron: And why did those markets, slow down so much? I know you're saying that there's a lot more building and capacity that went there, but aren't people still moving there and, and I know that in certain markets, buildings slowed down because interest rates went up, but did that not affect the Sunbelt states the same way that it did here?

Adrian: Yeah. So two reasons, or, two things. A lot of people were working fully remotely. So there was like the, I think the trend now was hybrid work. At the time, a lot of people said, Hey, I don't have to be in the office. I'm gonna move to a warm state. Sure. So that, that was, yeah. Neither do

Aaron: gonna be negative 15 here tomorrow.

Adrian: That wind hitting my face walking around today makes me reconsider. Yeah.

Aaron: Yeah.

Adrian: Yeah. But that those trends slowed as the world kinda stabilized and normalized. I think everything that we saw up until, from 2020 to 2023 is in my eyes an anomaly.

Yeah. Probably won't see not repeatable. Something that [00:06:00] you maybe won't see again, maybe one of those one in a hundred a year events. To put it that way. So the population growth slowed as people had to be more tied to a physical location go to the office, even if it's once a week, it's a bit tougher to, to make the case to, to move elsewhere so that, population growth slowed in that way.

And then additionally a lot of a lot of those developments interesting enough, had floating rates. So the debt tied to the either construction. Or the actual, the construction loan or the actual physical asset are not consistent. Interest rates go up and now you're, there's an imbalance there.

So I think, one way you have to view this is hey, if interest rates change, either go up or down, can I still make money? And, you'll see a lot of deals in the Sunbelt markets that are, that, seem like home runs in 21 and 2022 that are head of scratchers now, just because the change in interest rates the debt service increased and, it's no longer as viable or feasible to to build with that capacity.

Aaron: Do you see things where, you know, what we experienced in 2007 to 2010 or so where these large buildings might be going under because the debt [00:07:00] or the interest rates went up so much and they can't refinance or they're not getting the rents that they expected?

Adrian: I don't think we'll see it at the rate you saw it in 2007 or 2010.

There's gonna be some instances but for the most part, I would say, the overall status of the doubt or the debt, sorry, is relatively healthy. There are some challenges. You're gonna see some sales at a loss just because, some of those investors need to just, look, are cutting their losses there.

But I don't think you're gonna see that, that widespread that. Foreclosures or trouble with that?

Aaron: Yeah. That was something else to experience firsthand. I was working on condo developments and we were doing things in Chicagoland area and in Arizona, and it just came to a crashing halt and you knew that something was wrong. And there's nothing really you could do about it.

Adrian: Yeah. Condos are interesting because, there's still some condos now that are selling at a loss in comparison to, when they delivered in 2008 to 2010 or, before that. Yeah. I think an athlete's condo is currently being posted.

I forgot hockey player. Forgot exactly who, but might have been hosa, I'm not sure. But his condo's up for sale for [00:08:00] less than he acquired it for. Interesting.

Aaron: Yeah, it's a, it's a shame. And the same point in time, I have clients that are looking for condos and would love to have something new and there's not much going on, especially. In the suburban markets. But but in Chicago, what we're looking at, I wanna talk about all the different markets that that you cover, but in Chicago, in terms of rent growth we are seeing that now because things have been consistent.

And we did have a slowdown in how many units we're being built because the interest rates popped up so much. But what are you seeing now? And Chicago seems to be pretty healthy,

Adrian: right? Yeah. So for the last about seven quarters, almost two years now, Chicago has been a top five leader across the major markets for rent growth. And again, that's just due to not overbuilding coming outta the pandemic a very consistent level of supply.

Chicago is performing well from the rent growth standpoint as it relates to supply. We currently have just shy of 10,000 units under construction, so that's about one and a half, 1.6% of our total inventory. That's under construction. [00:09:00] If you take a look at the national rate, that's around 2.7%.

And then if you slice the top 25 markets, they're sitting at around 3.2% of their total inventory in construction. So Chicago is, still relatively unders supplied. We did see construction activity tick back up in the second half of 2025. We saw about nearly 4,000 units added to the development pipeline, which kind of did boost our total inventory under construction.

Prior to that, we were at around the, our rate was around 1.1 to 1.2%. So a decent shift. But even then, those projects, those 4,000 units that we added to the pipeline in the back half of 2025, likely not gonna deliver to market until 2027 and 2028. So 2026 is gonna be a extremely supply constrained year.

We're expecting between 3,700-4,000 deliveries. And that's about a 20% drop off from the 5,500 or so that we saw in the previous year. 2023 sorry, 2024 and 2025. Relatively consistent. As it relates to deliveries, we saw between 5,050 500, the drop off this year is about 20% decline. But yeah, [00:10:00] the 2020 this year is gonna be the kinda the most supply constrained.

Aaron: And do you think that demand is gonna continue with everything that's gone on with immigration? Since the Trump administration took over, there's, it seems to be that there's been negative net migration in the United States.

Is that happening within the Chicagoland area too? And does that affect. What people may build or what rent growth will be.

Adrian: Yeah. So we're gonna see demand decelerate slightly or we're seeing it now. But so two things. We're gonna, the demand is gonna continue to outpace supply. At least that's where we're forecasting, but we're demand is decelerating.

In previous years our absorption was very strong. 20, 23 and 20 and you can attribute that to the population growth in 23 and 24. We surprisingly, contrary to the headlines that you see about Chicago all the time, we added about a hundred thousand residents, across the entire Chicago Metro.

And a big portion of those were due to foreign net migration. But that's a trend that we don't. Forecast to continue just due to, federal policy get getting a bit stricter around that. Sure. We don't expect that, that, [00:11:00] population growth or that injection that we, that same, that we saw in 23 and 24.

We are, forecasting, a bit of a slowdown in demand and similarly a slowdown in rent growth. And that's both nationally, locally and nationally. Currently the rent growth rate across the nation is around 0.3%. Chicago's at 3.3%. So we're outpacing it notably.

But we are forecasting for the entire country that's gonna remain relatively flat throughout the entire year. You're gonna be bouncing around between 0.1 to 0.3% through then of 2026, and we're forecasting a deceleration for Chicago to about two to two and a half percent. That's a decent deceleration, but if you compare it to the rest of the nation still performing relatively well.

Aaron: Yeah that's good. One other thing too is these new executive orders about housing and not allowing large corporations to buy houses for renting, unless it's a specifically rental community, do you think that will have a big impact on the Chicago Metro area?

Adrian: I don't think so.

It's a very big headline but if you break it down, and I think Jay Parsons does a really good job of breaking it down. If you [00:12:00] take a look at some of his most recent posts on LinkedIn he talks about, what the actual impact is of institutional investment. In single family homes across the United States and I believe they're only about a 4%.

It's a, they're 4% of the market share, so it's not too much. And then I think some of the definitions are or the definitions aren't fully there yet, so I don't think institutional investor is clearly defined yet as it relates to, this policy.

So I don't think we're gonna see the outsized impact that, the headline kind of suggested it may.

Aaron: yeah.

I see just from my own work in residential, there were a lot more homes that were owned by some of these large companies, like Invitation Homes. They bought. A lot of houses outta foreclosure in the early 2000 tens, and I see that most of them have sold already. So I don't see it as like a big impact.

Certainly there's investors who wanna come in and buy things that need to be flipped, but that's more so like your mom and pop type of companies that I see doing that rather than large companies, at least in the Chicago area. I hear that it's more [00:13:00] so like in Tennessee or other markets that are.

Different than what we have.

Adrian: Correct. And I think if you take a look at the data for institutional owners from 2008 this way, they're net sellers at the end of the day correct. Just as you mentioned, they didn't, they're not holding onto these long term.

They came in, bought them at a massive discount, probably flipped them, rehab them, renovated them, flipped them. Yeah, I don't think what we're gonna see the outside impact that the headline may suggest.

Aaron: Yeah. I think it's, it makes for good headlines. Yeah. And then, one of the things that, I had actually had written about and had been a big topic was the, lack of demand for office space and about converting a lot of these office buildings into residential, especially like in the Loop.

And there's the city of Chicago is providing money to do some of these projects. Do you see that continuing? Has demand picked up for office space? What are you seeing in there?

Adrian: Yeah I'm sure you know a lot of people are aware about the LaSalle Street Reimagine initiative. Trying to convert about 2 million square feet of office into about 1800 residences 30% of those which will be affordable.[00:14:00]

I think there was just an announcement yesterday for, another building that was approved. You know that's going to start becoming a factor. Our two companies already started on 79 West Monroe, so that's underway. And then, there's some additional buildings that are set to break ground or, start the reconversion process in 2026.

We likely won't see those kind of make an impact or get delivered to the Central Loop till 2027 and 2028. I do see the office to to. It's a residential trend emerging even stronger in River North. So outside of those, six massive projects that you're hearing about as a part of LaSalle Street being imagined, there's about 450 or so units underway in River North that are former office spaces that are gonna be converted to residential.

And that's just because of the. The the overall built environment for River North. So if you take a look at a lot of those office spaces that are your lofty office spaces that are a bit easier to convert from the floor plate perspective, as well as overall livability perspective. They have windows across the entire buildings across the entire floor plate, sorry.

And just a bit more easy to convert at, a more economical cost. So River North is definitely picking up as it relates to those [00:15:00] conversions. As it relates to demand for office space, that's just, that's been the tricky one. Yeah. So we're currently market wide. We're sitting at around 17% vacancy for office.

That's slightly more than the national average. I think nationally we're sitting around 15.5%, so a bit elevated. But we are seeing demand returned back to the traditional corridors within the urban core. Any office along Wacker is seeing renewed interest.

And there's actually a small sh or a small shift away from Fulton Market. Not that people don't want to be there but the market's kind of frozen. There's not as much space available within Fulton Market. And, if you're in the market to move, I think the general feedback that that companies have gotten, landlords especially is that Fulton Market isn't too accessible.

And from a transit perspective, sure, only the pink and the green lines service it. Still a great submarket, great area, but. If you're gonna be having people in three, four, or five days a week, they probably want something they can get to without having to cross a highway, when you're walking from Ogilvy.

Aaron: Yeah. It doesn't sound pleasant.

Adrian: Yeah. I think that, crossing the highway creates like a big like mental block or hurdle as it relates to the distance. Again, not far [00:16:00] from Ogilvy or Union Station. Having to walk that was extra 10, 15 minutes. In comparison to getting off at Clark and Lake, which is serviced by every transit line in the in the country, or sorry, in the city is a bit more.

Aaron: You got Amtrak, so it is the

Adrian: country. Oh yeah, you're right. What

Aaron: What would you say is if you are a plus type company and you want to locate in Chicago, where would you go?

Adrian: I would likely go to the traditional West Loop submarket. So somewhere along, along wacker drives probably try to be on the river.

And if you take a look at the data, there are pre the, the premium for riverfront properties is notable. You'll see approximately a 10 to 15% premium for. For office buildings that are along the corridor of the river. I would locate there, but I, personally myself, I love the view of Lake Michigan.

So I would Sure I love the view of, Maggie Daly and Grand Park. As a former employee of the Aon Center, I, I used to spend a lot of time daydreaming out those windows. I think from my personal interest, it would probably be like the Neo E side, but from an overall feasibility accessibility, kind of [00:17:00] overall building quality. I would probably go somewhere along Wacker Drive in the West Loop.

Aaron: Yeah, that's def and near like Sears Tower and everything over there too,

Adrian: Correct.

Aaron: What does office space rent for per square foot over there?

Adrian: So just depends, but you're gonna be anywhere from the 30 to $55 a square foot range.

There's some office spaces that are creeping up into the sixties. The way we break it down. We actually have, if you take a look at class a slash trophy, we break it into three tiers because there are notable differences within Class A. So if you take a look at your, your premier trophies, you're gonna be in that.

52 to $60 square foot range. And then it decelerates from there. If you take a look at your signature buildings, they're gonna be anywhere from that 40 to 48, $50 range. And then you're gonna see the the a to a minus buildings be anywhere from that 30 to $38 range.

So yeah that, that's where they line up.

Aaron: And how does Chicago compare to, say, Manhattan or downtown Los Angeles? Like where would you say are the other Premier office [00:18:00] locations in the United States or globally like London or,

Adrian: Yeah Manhattan really blows out the water in terms of a square foot.

I don't think you're find anything in Manhattan under $70 a square foot just for standard office space. And that's where our signature is. LA is a very interesting office market because their office space isn't necessarily concentrated within the downtown submarket. The suburban office space is a bit is kind premier, premier over there.

Yeah. So you'll see like a lot of that low rise, three to five. Floor building or sorry, business park office space in la in different areas. So it's tough to pin rent specifically in LA when their downtown isn't the premier office submarket.

Aaron: Sure. And what do you see though, like in the suburban markets or you talk about like office campuses and things like that.

I know that there's been a lot of changes over the past 10 years in these large offices in the Chicagoland area, you had Sears. That campus is being redeveloped, all states being redeveloped. Baxter, I don't know where that's going right now. I know that there were, they were trying to change that too.

[00:19:00] And Walgreens and Deerfield. So there's a lot of different campuses, or even McDonald's, coming into the West Loop. So what's the prospects for that? What's the status of these things?

Adrian: Yeah. So I think, in terms of the kind of demolitions slash conversion, for, the suburban office parks.

Yeah. I think the. What is going to be converted or demolished or raised has been announced. As of right now, we don't see anything like on the horizon of, big announcements in terms of, the, these major plans for, former campuses. We are just generally seeing a shift for, those suburban spaces.

Those suburban spaces. Our, those business parks are really good candidates for flex office space. Or sorry, flex industrial space. So for example, you like Takeda, the, the manufacturer that just announced, um, you know, they're moved to the suburban campus. Um, you know, their appeal there is that they can have lab space, they can have office space, and they can kind of have like a, just a bit of r and d space as well.

Aaron: And then during COVID, there was so much building of warehouse space because everybody was just [00:20:00] buying tons of stuff and we needed places to to store it and have it delivered.

Has that slowed down?

Adrian: Oh, yeah. That slowed down specifically in Chicago.

And that's a direct result of, economic policy specifically as it relates to tariffs. So Chicago's really dependent on the flow of goods from both the ports both on the east coast and the west coast. So when you see the, when you see imports and, overall container shipments decrease in those areas you're going to, at the end of the day, you have to.

Either put those on a train or put those on a semi-truck and get them back, back to the center of the country for distribution. So when, when those import flows fall off, there's a direct correlation to demand for transportation distribution and logistics space here in Chicago.

Currently we, all of 2025, we saw a deceleration in demand specifically and mostly tied to. Our transportation and logistics sector for Chicago, no news is good news as it relates to economic policy. I think we're finally hitting a point where we, we're stabilizing we the, we saw the bru, the demand losses in 2025.

[00:21:00] Barring any unforeseen headlines. Yeah, who knows. But but as it currently stands at our current. Pace of absorption. We have about a five year supply overhang. If we're to continue to take up space at our current rate, it would take five years to occupy all the warehouses nationally that figures around 2.3 years.

So we have a considerable amount of space out in the market. But Chicago is the biggest industrial market in the nation. About 1.4 billion square feet of of industrial space. Around 70% of that is tied to transportation, distribution, logistics. A big player, but I think we should see a stabilization kind of moving ahead, barring any crazy tweets or headlines.

Aaron: Who knows? It, yeah, everything can change on the dime, and that's why it's so hard to be able to plan for these things. So people were building like crazy and then all the policies shifted and they could shift back again too. It's hard to plan if you're owning real estate, and that's for sure.

Adrian: Correct. And, but what's interesting is that you'll newer warehouses are in high demand. The warehouses have the adaptability [00:22:00] for kind technology as it relates to manufacturing automation. There's, because I think overall kinda just the way that we're storing things, you're gonna see a demand for, for taller buildings, higher clear heights more doors, higher doors as you get into these buildings. So a lot of the vintage space, that's was built in the seventies and eighties is, not necessarily suit for for the current needs and demands of the transportation, logistics, and warehousing world.

So at the end of the day, you are, you're gonna see a sh you're still gonna see a shift towards some of that new supply just from an overall accessibility and logistics standpoint, because you need that. That's just the way the industrial world has shifted specifically with automation.

Aaron: Yeah. Because with automation, the systems know how to get to things that are even higher up and being able to use robots in order to be able to get it, as opposed to these older buildings where you had to rely on manpower to be able to figure these things out.

Adrian: Correct. And, yeah. Correct. And for example, even if you're not stacking something all the way, to the ceiling you still have fire codes that you have to, that you have to abide by. The inspectors will come in [00:23:00] and, even though you're not.

Scraping the ceiling, you need x amount of feet between the sprinklers and your product. So that in, in case of emergency, the sprinklers could effectively work. They're running into situations where, they just need to move because they're not gonna shift the, the way in which they stack this or, how they store the product.

Sure.

Aaron: Sure. And another thing too, in, in this space are the data centers and everything that's going on there, so that, I feel like you keep reading headlines about new data centers being built throughout the country.

Is that also something that is affecting the Chicagoland area and is that taking up some of that space or is that completely built to suit?

Adrian: Most of the data center space you're gonna see is built to suit, Chicago is very interesting as it relates to data centers. Because, if you take a look at most major metros across the US or just most markets in general that are developing data centers you'll see that most of them are concentrated along the outer outskirts of the metros and the suburban areas.

In Chicago, they're they're geographically everywhere. There's one that, there's a conversion taking place right now in, in the loop in downtown Chicago that's being converted. You're seeing some movement in northwest [00:24:00] Indiana as it relates to to data centers as well as in the, just northwest of the O'Hare submarket. Data centers are geographically kinda spread out in Chicago, which is relatively unique.

You're not seeing that level of geographic diversity in other markets.

Aaron: Does it even matter where they're located? Do they just need to be close to where they can get electricity?

Adrian: Correct. The real estate right now is power. The power constraints are the biggest what's just hampering.

Overall just growth of the data centers. You need access to power and I think Comad just released a statement that they won't be able to meet the current power demands within three to five years. So if you didn't apply, two to three years ago, you're stuck in line right now.

Aaron: Why don't these companies just build their own power plants?

I know that some of them are, but are they doing that in Chicago?

Adrian: Yes. But that's actually a good question. I think the overall cost to building that is relatively inhibitive. But that's a good question. I think that would make the process a lot easier, but at the end of the day, they still have to hook up to come.

So ComEd has to be able to meet their needs.

Aaron: Yeah, it's, I remember a few years ago when everybody was [00:25:00] talking about getting the grid ready for electric ation of cars and all these other electric buildings, whatever it may be. And it wasn't really talked about the data centers for ai. It just wasn't on anybody's radar.

And that is what's driving everything. 'cause they're spending so much money on these investments that it's blowing anything away.

Adrian: Correct?

Aaron: Yeah. I think also like when I look at the suburban markets and you look at some of these shopping malls that are just dead, like North Pro Court or Lincolnwood Town Center and Old Orchard, thankfully, is doing pretty well and they're, it's gonna go under some redevelopment too, but do those.

Large areas pose potential for some of these other types of uses? What are you seeing in that space? Because I don't, I feel like a mall makes a lot of sense, especially when it's gonna be super cold out to be able to be inside and go shopping. But consumer habits have changed.

Adrian: Yeah. Malls are entirely dead.

They're the they are shifting in a [00:26:00] sense. If you take a look from a demand perspective, so I think rent growth is the number one kind of metric that kind of bakes in vacancy demand. Supply a little bit of everything. Malls lagged all retail types for rent growth.

Surprisingly not negative year over year, where they're sitting around the 1% territory

Aaron: Zero times zero is zero.

Adrian: zero. Yeah, co compared to, the broader retail market for Chicago, it's around two point half percent. But as it relates to, what you can do with malls, I think, the kind of the mixed use concept is pretty popular.

Focus Development just delivered the first phase of of Luca in the second half of 2025, which is, one of their first big redevelopment projects. And

Aaron: is that located?

Adrian: That is located that's Luca Fox Valley the former Fox Valley Mall. I think the, kind of, the concept for for malls are kind of like the, the game plan moving ahead is, you know, mixed use districts. So you, they'll probably have some retail, but you know, not hundreds of thousands of square feet.

You're not gonna have anything big box. You'll probably have something, think more traditional, maybe neighborhood center, power center, strip center retail as opposed to big box. But again, supported [00:27:00] by, high higher density of residential. And when you, and I think when you have, 500 units of residential that are surrounded by retail, you'll have, you have a direct consumer base right there.

That allows the retail to perform a bit. There's built in demand, there's foot traffic that, that is already built in. I think that's kinda the shift repurposing these spaces to be maybe 75% multi and 25% retail as opposed to a hundred percent retail.

Aaron: Yeah. And even I was in Arizona recently and there. Stopped at a Whole Foods, and it's basically the anchor for this large apartment development.

And I feel like that's what we're seeing in all these different places where certain businesses are always tying to these large apartments because they naturally feed each other, but it's not a huge, big shopping center. Yeah. I could see that happening a lot. Like at Northbrook. I would think would be a perfect opportunity for something like that.

Okay, but the best retail you were talking about in your presentation, are these strip centers? Why is that? You wouldn't think that necessarily if you're not in the space.

Adrian: Yeah. So the two reasons number one, the [00:28:00] just generally the services and the tenant base of strip malls are just services that you, that can't be replicated or duplicated online or virtually. So think your hair salons, nail salons, coffee shops cell phone repair stores tanning.

Tanning salons smaller experiential fitness users, so like a smaller yoga studio, Pilate studio, et cetera. And all of those are they require you to, they, they require foot traffic and they'll feed off each other. If you go to, if you go to a workout, chances are you may grab a coffee afterwards, or, beforehand whatever the case may be.

If you stop in at the dentist at the dental office, you might, you're likely gonna going to, walk past some of those stores and, maybe stop in and buy something. And just generally as it relates to just the box size strip malls are just a bit more conducive to that because the smaller nature of the box size, so sure.

Typically 2,500 square feet under. But, there is gonna be like what comprises your strip centers, which are performing extremely well, but just generally across the nation, we're seeing those 10 10,000 square feet and below performing or outperforming the rest of the market.

Do

Aaron: Do you see a lot of new development for those are, [00:29:00] is there a capacity for

Adrian: No. So retail development around Chicago and the nation is very subdued. In Chicago there's just about 1 million square feet currently under construction. As it relates for the entire retail market, that's about 0.2% of our inventory. So not much at all. Nationally, there's there's about 0.4% of the inventory currently underway.

So we're relatively undersupplied from a construction standpoint. It's actually helping us out a little bit. The closures that we saw in late 2024, so think your Joanne Fabrics party, cities of the world big lots. Those had a big impact in Chicago. There was a notable f footprint of those companies.

Across the entire market. So all of last year, the, in 2025 we're working through those closures backfilling those spaces. A lot of those were backfilled by gyms. Those within your LA Fitness, planet Fitness, they were the number one candidate for those backfills. So the pace of construction is actually helping us out.

And the reason why construction is so slow is just. Challenging capital markets just due to rising interest rates. That, that's put a hamper on construction activity, rising material costs, and rising labor costs. That's all contributed to retail development, not [00:30:00] being you just, the rents just don't pencil right now for, considering the kind of quick rise in costs.

Aaron: But I guess in my viewpoint, it looks like a, an opportunity, but if it's not penciling, then it's not an opportunity.

Adrian: Yeah. It's just not penciling as of now. That's gonna force, a lot of the existing strip centers to, remain more competitive. If things aren't being built, people are gonna go to whatever space is available on the market, so you're likely gonna see, a lot of strip centers undergo significant renovations to just remain competitive with the existing stock out here.

Aaron: Yeah, because it's already there and it's entitled, you don't have to go and find new land.

Adrian: Correct.

Aaron: Yeah. And I see that all, all over the area. Communities have really have challenges to be able to convince businesses to come and invest into their area.

So the city of Chicago obviously has a lot of money behind their economic development, real business, Chicago. They're the big dog in the area, the suburbs, they all have economic development. Coordinators or directors. You worked in that space. I interned in that space. We've seen it.

It's [00:31:00] hard. And they're all basically competing. So what do you think works? Because I see a lot of times, like I've been very involved with Skokie and Evanston. I've seen what they've done. There's different types of. tax increment financing that they could use different types of business district grants and they could work with developers to be able to get financing set up.

But what actually works and gets the momentum going to really get a town center to be successful.

Adrian: Yeah, I think speed is what works. I think a lot of deals die due to time. So if the, if the local dev planning department, economic development department has the ability to, number one, review permits quickly if they have the ability to just, correspond with the prospective tenants very quickly, I think that's what, helps gets most of these deals across the finish line.

Timing kills everything. Investors do not wanna wait three to six months for a review period. They come back and the city says hey you need two and a half more parking spaces after, a six month review. So I think overall [00:32:00] speed is just what helps the most trying to get this out the, reviewed and approved within one to three months.

That really helps.

Aaron: You think that's even more important than some of these monetary incentives?

Adrian: They, I guess they

Aaron: they go hand in

Adrian: hand. They, yes. But the thing with monetary incentives is that it, there's two sides of it. There's two sides of the fence. You're gonna have your, you're gonna have your group that, doesn't wanna see, the incentives handed out to your prospective tenants to try and facilitate these deals. And then you're gonna give the other group that says, Hey, this doesn't pencil without public subsidy or incentives. So I see both sides of it. I think they, they do work in a sense.

But it's a little controversial and a, by geography,

Aaron: 20 years ago I worked for a developer had a plan, , approved by the planning commission and went to the city council and it was rejected. So he basically had to completely redesign the project, which changed everything.

It slowed things down, and by the time. Things got going, hit the 2007, 2008, and the project died like [00:33:00] midstream. I mean, it, it, half of it was built. So if you had the speed and certainty, then you, you can get these things off the ground much more quickly , and make the market while it's there.

Adrian: Correct. And, and that also adds to your soft cost. For example, having to go back and redo the plans you have to pay the architects again. You have to pay the engineers again. That adds up over the course of time.

At the end of the day, your soft cost going to your total cost. And you have to bake those into the rents. And who's gonna pay the rent? It's gonna be the the tenant. And that gets passed down to the consumer. At the end of the day, if you can reduce your soft costs with, with speed with efficiency, you, that's a big factor.

Aaron: Yeah it is, it certainty is key and it eliminates some of the risk. Now, if somebody's looking at the Chicagoland area overall compared to other markets, tell me why somebody should go and invest in Chicago.

Adrian: Yeah. So from a multifamily perspective, I would say that, if you compare us or put us up with the rest of the gateway markets, affordability is our key.

And that's here in Chicago, in the Midwest, I think the, all the Midwest markets are currently getting their, their [00:34:00] 15 minutes of fame as a result of affordability. But if you take a look at the gateway markets, we're about 30% more affordable than than the average of. In terms of rents.

So the average for gateway rents is just shy of, $2,800 in the Chicago market. We're around the $1,900 mark so that, affordability is a big factor. And in Chicago we do have consistent demand. Everybody that goes to school in the Midwest likely a dream of landing their job in Chicago, living in the big city.

Which is a consistent demand driver. I don't see these institutions going away anytime soon, and there's a significant amount of, schools in the Big 10. You have solid demand drivers. And then, I think just overall Chicago's remained consistent. We've, despite, through all the peaks and troughs, we've never overbuilt.

We've never overreacted and Chicago's remained consistent. If you zoom out and take a look at the data you'll get. A very solid picture. And I think in other markets there, there's they're very cyclical and more exposed to to some of the swings. During the highs it's great.

During the lows it's a bit tougher.

Aaron: Yeah. And also we have so many major projects at the market [00:35:00] outlook.

We have real business in Chicago there and they're talking about all the different things that were happening from quantum to O'Hare to all the redevelopment around the United Center. I think there are like 20 different things that, that he mentioned. And those are all demand drivers and an endorsement of the city of Chicago,

Adrian: Correct. Yeah, I think as of right now, there's six, six cranes in the sky. There's 12 cranes approved. So by the end of 2026, there should be somewhere around 18 cranes up in the sky, which is a massive demand driver.

The one I'm most excited for is the quantum computing facility down on the former US Steel site. As a, a resident of the southeast side, that's something that I've passed every day to get to school, to work. And, you know, it's been sitting vacant for quite some time now. Uh, so, you know, really exciting to, you know, to see that kind of, to kind of take off.

And, you know, I think I'm dating myself a little bit now, but , when I first started, , my professional career. That was the plan for that was the Barcelona Housing Project, so that was gonna be

a couple thousand residential units. They were gonna try and make it kinda like a smaller mixed [00:36:00] use district.

Those plans have, have come and gone but, , very interesting and exciting to see, , the quantum,, movement heading that way. There's actually a. Still a kind of a mockup figurine model in the right near the US Steel site.

Not right off 87th and South Shore Drive where the former US Steel employees used to go clock in and out of work. That's kinda like a smaller office space that's like a museum now. And they actually have a kind of a mockup of that model figurine for the couple thousand residential units.

Pretty cool to see, what could have been there, but right.

Aaron: I remember going in 2004, I was at an American Planning Association Convention and they had an option to. Take a tour of different developments around Chicago.

So we, we went there, we went up to the Glen when that was being built in Glenview, a bunch of other places. But I remember going through that site and it's, so when I hear about these new projects in 2026, it's like, all right, let. Let's get the shovel in the ground and actually build this thing. And what's [00:37:00] so interesting with Quantum is that nobody knows what they're really talking about.

It's nebulous and it's what kinda jobs are gonna be there? What is actually happening here? And I just wanna see it go up so that way the people can see and it's real. And then that will de drive a lot of demand. You're a resident of near by that area. What do residents feel about that though?

Like what, I know this isn't necessarily about like the data and things that we've been talking about, but what's it like being there where you're being discussed that there's gonna be these major projects going on for over two decades and then nothing happens and like how. Does it feel like what about everything we have going on here already?

Tell me about that.

Adrian: Yeah, there's a mixed bag of emotions from the local residents. I think, , the, the concern is that the development won't benefit the,, the residents of the community. There's a big push for CBA specifically from the local environmental groups the Southeast Environmental Task Force specifically who's seeking a CBA, that'll ensure that there's some benefits to the residents.

And [00:38:00] then you have your you have the other side where people are just excited that. This land is finally gonna be, gonna be something. It's been sitting vacant since late eighties, early nineties. And the area was heavily impacted by the steel mills packing up and leaving a lot of thousands of jobs lost.

And you can see that reflecting in the South Chicago community. So there's a mixed bag of emotions but ultimately I think, some progress is better than none.

Aaron: Yeah, I agree. And I think that this is a thing that will be great for the entire region. Correct. Once it actually happens.

Yeah. And we need these types of businesses and industries to be able to remain relevant, as time goes on. 'cause things are changing it seems like rapidly, yeah. This is, I think that anyone listening you, I think you've gotten a good sense of what the Chicagoland market is like and all different factors within the real estate market and all the things that drive what's happening here.

Is there anything else that you wanna leave us with?

Adrian: Let's see. I think, there's some ex exciting times for Chicago ahead. There's a lot of [00:39:00] demand drivers that are going probably reshape the city urban core, entire metro as we know it. I'm really excited to see, Google kind of occupy that the Thompson Center.

I would, I can't wait to walk in there and just see what it looks like from the inside. If Google does end up moving those 2000 residents into the space, that's a, big, that's a really good tailwind for just overall just the economy of the urban core, specifically in the retail aspect.

Anywhere, any submarket that has loop in its name has availability. Rates. So think of what's vacant plus up for sublease between 23 and 28%. The, those 2000 employees, plus all the people that come to visit they can really, provide a big a big boost to, to the local retail economy.

And then you're gonna have, hopefully 1800 units residential, paired with that within a, quarter mile, third of a mile radius. That can be an additional. 3000, 3,500 residents. So an additional 5,000 people that are, that, that are, driving foot traffic to the loop is gonna be significant and monumental.

[00:40:00] And we have movement on, every side of the city. I think for a long time. The, the. A big the, people are, people say, oh, everything just concentrated in the downtown area. Now you, movement on the south side, you're seeing movement in the downtown urban core.

You're seeing data centers go up just even north of O'Hare. So there's movement, all across the entire city. And I think there's a lot of reasons to be optimistic and excited for, the next five years here in Chicago.

Aaron: Yeah, I certainly am. And I think this is great.

Adrian, thank you so much for your time today and for sharing your wisdom with the audience here. And I look forward to hearing you at the next market outlook and reading everything that you're preparing so I can remain educated and advise my clients and people I know so they can make good decisions.

Adrian: Awesome, man. Thank you Aaron. I really appreciate you having me on today. It was a blast. And yeah, looking forward to to continue and learning about and the Chicago market and diving into it.

Aaron: Sounds good. Thanks so much.