Chicago’s multifamily real estate market is showcasing resilience and growth, outperforming national averages despite economic uncertainties. With a stable job market, diverse housing options and a focus on strategic investments, the multifamily sector remains a stronghold in the city’s real estate landscape.
According to CoStar data, the Chicago apartment market saw a 2.7% increase in asking rents year-over-year as of the first quarter of 2024 with vacancies hovering around 5.6%. These metrics are indicative of a healthy market driven by strong job opportunities and varied rental options.
Want to learn more about the state of Chicago’s multifamily sector? Be sure to attend our Chicago Apartment & Multifamily Summit Sept. 5 at the Carlisle in Lombard. You can register here.
Ralph DePasquale, managing director of investment properties at Berkadia, emphasized the overall strength and demand in Chicago’s multifamily market.
“Of all the various property types within the market, multifamily is by far the top sector, both in terms of operations and investor demand,” DePasquale said. “The overall market for multifamily is very strong with low vacancy and strong rent growth across all classes from A through workforce, and really throughout the state.”
Workforce housing has long been a cornerstone of the Chicago multifamily market, offering durable demand and reliable cash flow for investors. These properties, often older and more affordable, remain attractive due to their proximity to job centers and transportation hubs. DePasquale noted that investor interest in workforce housing is particularly strong due to its consistent performance and lower vacancy rates compared to higher-end properties.
Location remains a critical factor for multifamily investments. DePasquale emphasized the importance of proximity to job centers and transit-oriented developments as key criteria for promising investment areas.
“You still need to follow the jobs or at least, the most cost-effective and efficient way to get to those jobs. Areas with good job growth and relatively low vacancy rates are usually at the top list,” he said.
In response to changing renter preferences, property owners in Chicago are getting creative with space planning. Older buildings with formal dining rooms are being reconfigured to add bedrooms, home offices, or larger kitchens.
Sustainability trends are also influencing development projects with features like smart thermostats, recycling and outdoor spaces.
“Having the ability to offer a ‘green’ project has become more important to younger renters,” DePasquale noted.
Shifting demographics, including a growing senior population and increased demand from millennials, are shaping housing options. The emergence of Build-to-Rent (BTR) communities is a notable trend, according to DePasquale.
“The emergence of BTR communities has been a recent sector of the multifamily market, appealing to both older empty nesters and younger families that want or need more space and a yard,” he said.
The Federal Reserve’s decision to keep interest rates elevated to control inflation has posed challenges for multifamily investors. However, those with long-term, low loan-to-value loans and higher debt service coverage ratios are well-positioned to navigate these economic shifts.
“The only thing that dampened investments over the last 18 to 24 months has been the rise of and unpredictability of the capital markets. Interest rates paused investment transactions as both buyers and sellers navigated through pricing,” said DePasquale, adding that for investors with over-levered, variable-rate debt, refinancing might require additional capital or asset sales, potentially creating opportunities for well-capitalized buyers.
Despite the unpredictability of the capital markets and rising interest rates, the fundamentals of Chicago’s multifamily market remain strong. With a continued demand for housing and a slowdown in construction, the outlook for the sector is optimistic.
“I believe that multifamily will continue to be the darling child of the real estate industry as demand for housing continues to increase and a slowdown in construction over the next few years,” DePasquale concluded. “This will bode well for Illinois and throughout the Midwest.”
