Six months into the pandemic, downtown Chicago is a humbled giant; can it get back on its feet?
By BLAIR KAMIN, RYAN ORI AND LAUREN ZUMBACH | Chicago Tribune | Published: September 15, 2020
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CHICAGO (Tribune News Service) — Six months after the COVID-19 pandemic first shook Chicago, the city’s once-mighty downtown — with its towering skyscrapers, glamorous shops and glittering public spaces — is a humbled giant, taking only tentative steps toward recovery.
At the city’s tallest building, Willis Tower, 15,000 office workers poured through the lobby on a typical day before the pandemic. On Thursday, between 8 and 9 a.m., Tribune reporters counted 75 people passing through its main entrance.
Depressed by two waves of looting that stunned Chicago, foot traffic on and around the Magnificent Mile shopping district was less than half what it usually is. Occupancy rates for downtown apartments are the lowest they’ve been in 18 years.
As tumultuous as the last six months have been, what happens in the next six — from the presidential election to the possible development of a coronavirus vaccine — could do even more to determine whether Chicago’s downtown reaffirms its role as the undisputed hub of a region of nearly 9.5 million people, the largest metro area in the Midwest.
In Chicago, as in other American cities hammered by the pandemic, the stakes are enormous. Largely due to the COVID-19 slowdown, which has cut deeply into tax revenues from hotels, restaurants, retailers and ride-sharing companies, Chicago is projecting the largest budget deficit in its history, $1.2 billion, for fiscal 2021.
“If we can’t get back to reopening the economy and people wanting to congregate, the attractiveness of all cities is in question,” said Laurence Msall, president of the Civic Federation, a budget watchdog group.
Bounded by North Avenue on the north, the Stevenson Expressway on the south, Ashland Avenue on the west and Lake Michigan on the east, downtown Chicago is a powerful revenue generator as well as the home of tourist attractions and architectural wonders. According to the Civic Federation, it accounts for roughly 40% of Chicago’s real estate property tax revenue, lessening the property tax burden elsewhere in the city.
To be sure, downtown has overcome a host of past challenges, from the catastrophic property damage and loss of life wrought by the Great Fire of 1871 to the economic collapse of the Great Depression.
After the terrorist attacks of Sept. 11, 2001, some doomsayers predicted that no one would want to live or work in skyscrapers — a forecast that proved spectacularly wrong, not just in New York but also in Chicago.
What makes this crisis different are digital technologies, like Zoom, the videoconferencing app that allows white-collar employees to work from home. During the 1918 flu pandemic that killed an estimated 50 million worldwide, people still went to work in Chicago’s Loop, although city officials ordered them to arrive at staggered times so they would not overload street cars and elevated trains.
“Technology can bring so many things into your home. That was not the case” in 1918, said Tim Samuelson, Chicago’s official cultural historian.
As a result, the pandemic’s impact is rippling through, and beyond, downtown, disrupting daily routines throughout the region.
On a typical pre-pandemic September weekday last year, Metra’s 11 commuter railroad lines had a ridership of almost 275,000, according to the rail agency. On Sept. 3, that figure stood at about 25,000, 9% of normal — up just slightly from the 3% low point of April 10.
Absent downtown’s magnetic pull, suburban train stations sit empty, as do their once-coveted parking spaces. At a Lake Forest station, “people were fighting to get a spot at 9 in the morning. Now there’s three cars there,” said Michael H. Ebner, professor emeritus of history at Lake Forest College and author of a book about the development of Chicago’s North Shore.
Traffic volumes on downtown streets reflect office workers’ absence.
During the week of Aug. 23-29, traffic was only 62% of what it was in the comparable week of August 2019. In contrast, traffic volumes citywide are back to 88% of pre-pandemic levels, according to the Chicago Department of Transportation.
Downtown foot traffic also has dropped precipitously, as evidenced by the trickle of people entering Wills Tower’s main entrance at 233 S. Wacker Drive on Thursday.
Elsewhere on the north-south leg of Wacker, the sidewalks were almost empty, in contrast to the thick crowds that typically head into the Loop from Union Station and the Ogilvie Transportation Center.
Willis Tower exemplifies the struggles, and high financial stakes, of the downtown office market.
In 2015, New York-based private equity behemoth Blackstone Group paid $1.3 billion for the 110-story skyscraper, a record for any U.S. office building outside Manhattan.
Blackstone undertook one of the priciest redevelopments in Chicago history, a $500 million renovation and 300,000-square-foot expansion to add an indoor mall called Catalog, which will include a food hall, restaurants, shops and other amenities to the tower’s lower levels.
Then the pandemic struck and companies, including those in Willis Tower, told their workers to stay home. (A spokesman for EQ Office, Blackstone’s office unit, declined to say how many people work in the tower each day.)
Office tenant brokers are advising companies not to sign leases unless necessary, to allow more time to evaluate an unprecedented situation and because they’re likely to have more — and cheaper — options in the months to come. Companies including Uber and Groupon already have made blocks of office space available for sublease.
As companies downsize, a glut of available space could drive down rents after more than a decade of strong real estate conditions.
The impact of absent office workers already is apparent a block east of Willis Tower, at a Dunkin’ at 229 W. Jackson Boulevard.
Because business is down sharply, two or three people were working the counter instead of the usual eight or nine, said employee Jorge Rios. With fewer office workers around, the store cut the number of doughnut varieties it offers, sticking with old favorites like glazed doughnuts.
“The people keeping us afloat right now are the construction workers,” Rios said.
The pandemic and two waves of looting have rocked much fancier stores on North Michigan Avenue, the city’s Magnificent Mile.
The first, in late May, amid civil unrest that followed George Floyd’s death at the hands of Minneapolis police, hit just as stores were preparing to reopen to shoppers. Some retailers were hit by looting again in August, following a police-involved shooting in Englewood.
Many have reopened in a defensive crouch, keeping their windows boarded up.
Foot traffic in the area was down between 60% and 70% in August, according to a report by Unacast, a company that tracks aggregated location data from apps on consumers’ phones.
In contrast, the foot traffic in and around powerhouse suburban shopping center Woodfield Mall in Schaumburg was down about 29%. In the area in and around Old Orchard, in Skokie, foot traffic was down 20% to 37%, according to the Unacast report.
At The Shops at North Bridge indoor mall along North Michigan, the owners of the Giuseppa Collection, which sells Italian-inspired women’s clothing, said sales were down about 75% compared with last summer in June and July. After the second round of looting, it got even quieter.
“Last year there were so many tourists, so many local people,” said owner and founder Grace Krynski. “It’s a completely empty street.”
During August’s unrest, people broke in, stole merchandise and left mannequins in pieces on the floor, she said.
Krynski and her daughter Pauline said the family is considering whether to remain on Michigan Avenue.
Downtown apartments, popular with city-loving millennials, students and empty-nesters, are hurting too.
In July, the occupancy rate for downtown apartment buildings fell below 90% for the first time since 2002, according to Gail Lissner, managing director of Integra Realty Resources, which tracks occupancy rates at 130 apartment buildings downtown. The rate was nearly 95% a year ago.
In the early months of the pandemic, many tenants renewed their leases, Lissner said. Yet with COVID-19 still posing a threat, more opted out.
“All the reasons for living downtown simply disappeared,” Lissner said. “People wanted to be close to work, dining, shopping, entertainment. All of a sudden, all those amenities were gone.”
“Density was something that we really cherished, pre-COVID,” she said. “Now density has become a scary term. People are looking for those wide-open spaces.”
From the first quarter of 2020 to the second quarter of 2020, rents dropped 3.65% in newer luxury buildings and 7.48 % in older buildings, she said. Prices of condo units have held steady so far, Lissner said.
Some real estate developers are taking a bullish view, portraying the current crisis as a pause, not a fundamental shift. They argue downtown will continue to be a draw for both residents and companies, and that its current travails are merely temporary.
“We need to work with others. It’s about teamwork and relationships and the social aspect of going to the office. To get all of that, you need to be in an office.” said Jim Letchinger, CEO of JDL Development, which just proposed a massive residential development on 8 acres of Near North Side land it plans to buy from Moody Bible Institute
The pandemic also has hit air travel hard, depriving downtown of two significant sources of revenue and tax dollars: tourists and convention attendees.
Passenger counts at O’Hare International Airport were down 84.6% in June compared with a year earlier. At Midway, the drop was nearly 63%, according to the Chicago Department of Aviation.
Since March, 150 McCormick Place trade shows have been scrapped because of the coronavirus. Those shows were expected to generate more than $2 billion, including spending at hotels, restaurants, transportation options and entertainment, according to the convention center.
In August, the owner of the historic Palmer House Hilton, New York-based Thor Equities, was sued for almost $338 million in missed loan payments, in the largest Chicago foreclosure case to emerge from the pandemic.
On Labor Day, Navy Pier closed until spring when attendance reached only 15% of its normal levels. At Willis Tower, the Skydeck observation area on the 103rd floor is open just three days a week instead of the usual seven.
Not all the news is bad. Construction has continued during the pandemic, with projects like the 60-story Salesforce Tower at Wolf Point moving forward. Last week, developers Sterling Bay and Magellan Development Group broke ground on a 47-story apartment and hotel tower at 300 N. Michigan Ave.
“I’m still having development meetings week in and week out,” downtown Ald. Brendan Reilly said after the event. “My queue of potential projects in the 42nd Ward is still around 50. They wouldn’t be paying lawyers and architects and traffic consultants to come spend hours with me if those weren’t real.”
Also last week, the Chicago Loop Alliance released a report which showed modest upticks in office, pedestrian, parking and hotel activity in downtown’s core. But only parking had climbed back to more than 40% of its 2019 levels, reflecting how many downtown workers are shunning public transit in favor of commuting by car. The report was based on a survey of nearly 45 businesses in August.
A vaccine could create an eventual return to the pre-pandemic downtown. But even with a vaccine, some companies could stick with hybrid arrangements that let employees partially work at home. Surveys show that many employees like the arrangement, which saves them money and commuting time.
If the desire to escape the dense downtown persists, it also could boost the suburban office market as well as planned office and apartment megaprojects near the fringes of downtown, like Lincoln Yards and The 78.
“We stand on the possibility that we might have a reversal or a transformative effect that was entirely unpredictable,” said Ebner, the Lake Forest history professor.
But he and other historians emphasize that such reversals have been predicted before, only to see downtown Chicago reinvent itself with such features as Millennium Park and the downtown Riverwalk, leading not just to a rebound but to spectacular bursts of growth.
After 9/11, Lissner said she wondered if anyone would want to live or work above the eighth floor, but they did. “I don’t think this is the demise of downtown living or downtown working,” Lissner said of the current crisis.
Reilly acknowledged a likely long road back for many aspects of the downtown economy, such as tourism and retail, calling it “nearly a certainty that 20% of our bars and restaurants will close and will not come back.”
It will take more federal aid and flexibility in city regulations, such as increasing capacity levels, liquor-serving hours and street closures to create outdoor seating, for the rest of the bars and restaurants to hang on, Reilly said.
“Take a pandemic, layer on top of that an economic disaster greater than the Great Depression and then sprinkle in some civil unrest,” Reilly said. “No one could contemplate this happening 12 months ago, all at once. But Chicago has survived worse. We survived the fire, for crying out loud. We’re going to get through this.”