BY DAVID ROEDER AND SANDRA GUY droeder@suntimes.com sguy@suntimes.com

It has stacks and stacks of residents with disposable income. Its intersections get pedestrians by the thousands every day. To merchants, it sounds a little like heaven.

It's none other than downtown Chicago, which leasing agents say has become one of the most coveted markets in the country for retailers. It's coveted because it is seen as safe.

Retailers are turning their backs on greenfield suburban sites now that the credit crunch has put the brakes on home construction. In a business whose pros say, "Follow the rooftops," retailers put up stores before the homes arrived and are paying for it.

Mass merchandisers such as Target and Home Depot are scrapping or putting off Chicago area expansions. Suburban malls shudder as a gathering recession scares customers away.

But different rules apply downtown, where leasing agents say many mid-size to small retailers are scouring for space. Unfamiliar grocery chains, high-end fitness centers and assorted restaurants are among the most active in the market, they said.

"Retailers want urban, and I mean really urban, where there's a massive concentration of disposable dollars,'' said Keith Lord, president of the Lord Cos. LLC, a prominent brokerage for downtown space.

Best Buy has signed to take over the ground floor space in the John Hancock Center after the Paul Stuart menswear store leaves in 2009. Circuit City is said to be in the market as well. The cinema chain Muvico Entertainment LLC has made a huge commitment to downtown's Block 37 location between Macy's and the Daley Center, where it will be joined by a David Barton Gym.

Vacancy rates steady

Lord said competitors on the fitness and sporting goods front also want to be downtown. He said Xsport Fitness, LA Fitness, Lifestyle Fitness and Dick's Sporting Goods are in the market. So is a surprise, the Kohl's department store chain, Lord said.

Developers are busy making a place for them. Large-scale projects in the works would create more choices for downtown shoppers, while potentially capsizing the market and leaving it with vacant space and declining rental rates. But for now, brokers express no worries.

The Loop itself is the biggest development focus. Two huge projects have been started along State Street, the Block 37 construction plus renovation of the former Carson's store, now called the Sullivan Center.

Add to that the boutique stores planned for the Palmer House Hilton, and you have three projects that will expand the Loop's retail space by 600,000 square feet, or about 16 percent.

Vacancy rates in the primary Loop corridors have been steady in recent years, indicating that new space quickly gets absorbed. A report by Stone Real Estate Corp. said Loop retail vacancies were up slightly in 2007 to 14.9 percent, a rate that's historically low.

David Stone, founder of the brokerage, said the new space will add vitality to State Street, even if economic troubles force developers to extend timetables or be more flexible on lease terms. "The economy is providing a bit of a headwind, but areas like State Street are still in high demand," he said.

Walter Wahlfeldt, senior vice president at Jones Lang LaSalle Inc., said the demand has emboldened landlords to raise rents. He recalled shopping for a client a couple of years ago and getting quotes of $100 a square foot for State Street. A year later, he was back in the market, and the rates had gone up about 20 percent, he said.

For years, the West Loop had a slight impact on retail. But it has gotten an infusion of condominium owners and office dwellers since the late 1990s, so developers are betting it'll be the biggest retail growth market outside of State Street.

A proposed Metra Market attached to the Ogilvie Transportation Center would provide 120,000 square feet, probably with a heavy restaurant component because of its proximity to Randolph Street's fashionable dining places. Leasing, however, has been slow.

The project also is getting competition from ownership of the Presidential Towers apartment complex. It disclosed last month that it wants to expand and refocus its ground-level retail arcade.

No chill on Boul Mich

Meanwhile, Union Station is slated to get a hotel and condominium high-rise with about 80,000 square feet of retail. Developers are looking at a concept such as a nightclub to draw an after-hours crowd.

The city's most exclusive market, North Michigan Avenue, has felt little of the economy's chill wind. Experts said the prime street-level space is almost entirely rented, at rates that can reach $300 a square foot even off Michigan itself. Lord said he has heard some landlords will try to get $500 per square foot in new leases. "People say, 'Why pay it?' But it's half the going rate in New York, San Francisco or Boston," he said.

The problem is in the avenue's vertical malls. Water Tower Place is working to fill space vacated by Lord & Taylor, while the Chicago Place mall has looked at turning upper floors into a hotel. Just off Michigan Avenue along Chicago Avenue, there's a large multilevel vacancy, the hardest space to rent, that used to contain CompUSA and American Girl Place. CompUSA closed, and American Girl will move to Water Tower this fall.

With fewer development sites, the Magnificent Mile is less able to expand. But the old Lakeshore Athletic Club at 441 N. Wabash, property controlled by the Wm. Wrigley Jr. Co., could be turned into stores and connected to Michigan. A Wrigley spokesman said the company has made no decisions about the property.

Also, the Trump Tower project at 401 N. Wabash is to include 100,000 square feet of retail. But sources said Donald Trump's prices have kept tenants away.

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