By most metrics, Chicago’s rental market is not only improved over recent years, it is one of the strongest in the nation. That’s the takeaway from the 2018 Chicagoland State of the Multifamily Market report developed by Cushman & Wakefield for its clients.
Last October, the Chicago office of Cushman & Wakefield hired on the entire KIG CRE multifamily institutional investment sales brokerage team. At the time of the acquisition, the sales team has brokered over $2.4 billion of multifamily sales, 145 acres of multifamily land and sold more than 33,000 apartment units. They also brought some powerhouse market knowledge and analysis to the table.
“It was very important to Cushman to bring our entire team on, including all of our analytics team, which does so much for producing these reports,” said Todd Stofflet, who came over in the KIG hiring and now serves as managing director at Cushman & Wakefield. “That was an important part of us joining the group: being able to have our analytics which is what differentiated us in the market.”
According to the report, 2018 was a record-breaking year for apartment absorption in the downtown neighborhoods. By year’s end, they estimate that over 4,200 units were absorbed, in contrast with 3,600 deliveries. This differential provides landlords a chance to catch up with the oversupply of 2016 and 2017.
“We’re absorbing more than we are building and because of the affordability requirement that is in place, we’re starting to see a significant decrease in deliveries,” Stofflet said, “which will continue to allow rent growth to be positive and strong within all of the Chicago markets.”
Chicago’s downtown ranks only behind New York for the number of apartment unit deliveries this cycle, all while maintaining strong occupancy numbers throughout. According to Stofflet, River North, which has seen many deliveries over the last two years, is one Chicago neighborhood that should experience strong rent growth and stability over the next two years.
His outlook for the South Loop, however, is gloomier. A number of recent and forthcoming large deliveries—such as Lendlease’s The Cooper at Southbank, Crescent Heights’ NEMA Chicago and 1000M by a joint venture of Time Equities, JK Equities and Oak Capitals—could expand the window for concessions in that submarket out to mid-2020.
In the suburbs, new construction is being well received and the spread in rents between existing product and new construction is fairly significant. In particular, the North Shore has stabilized very well with a substantial amount of deliveries compared to the historic average.
“We’re seeing about 70 percent more new construction going on in the suburbs this year than we did last year,” Stofflet said. “There is definitely a move to new development in the suburbs that we haven’t seen in the early cycle so it will be interesting to see how the suburban markets fare with the new construction.”
Included in the report was an analysis of renting versus owning, showing that Chicago is one of a few markets across the nation that has actually had negative median value in home sales over the past ten years, dropping by 14.8 percent. A decline in new construction for single-family and condominium product, as well as depreciation for homeowners, has deepened the renter pool.
In addition, comparing the monthly cost of renting versus owning a unit, renters are getting more bang for their buck. The report looked at average rental prices, insurance costs, HOA fees, taxes and other factors to determine what an occupant is actually paying per month for a studio, one-bedroom or two-bedroom unit.
The analysis showed that, on average, it’s more expensive to rent a studio rather than own ($1,731 versus $1,612). However, for larger units, the advantage shifts toward renters. Average one-bedroom units can be had for $2,254 per month to renters or $2,499 for owners. The monthly cost to rent a two-bedroom unit is $3,646, compared to the $4,737 to own.
With more high-earning, highly educated tenants moving into Chicago due to job growth—and with more occupiers renting by choice—the multifamily environment in the Chicago area is poised to remain strong through the next couple years.
