Renter demand surged as steady job additions bolstered household formation, according to a report Marcus & Millichap. The significant wave of deliveries was largely absorbed on a macro level, but workforce housing vacancy rates tightened much more dramatically than Class A properties.
In Chicago, multifamily development remains well above the previous 15-year average and is on track to rise even further in 2018, especially in the urban core, Marcus & Millichap reported. Last year more than 9,000 apartments came onto the market, and this year about 8,300 are expected in 2017. The majority of the units getting delivered are luxury apartment communities, despite a critical need for more affordable housing within the community.
In order to meet these demands for affordable housing, Mayor Rahm Emanuel announced a pilot program that aims to create 1,000 affordable units over a period of three years in gentrifying areas on the Near North Side, Near West Side and Milwaukee Avenue. If the proposed plan is approved on Sept. 6, developers wouldn’t have the option to pay a fee, instead they’d be required to set aside units for low-income residents.
Despite a rise in metrowide vacancy, rent growth will not be subdued, with the average effective rent set to reach a new high by the year’s end, according to Marcus & Millichap. Average effective rent in the urban core reached $1,783 per month in June, up 6.6 percent year over year. rent in the Loop jumped 7.2 percent up to $2,288 per month. In the suburbs, healthy demand raised the average about 5.3 percent in the past year to $1,205 per month.
In the urban core over the past 12 months, the vacancy was raised 200 basis points to 5.7 percent in the second quarter. In the suburbs during the same time period, the vacancy tightened 10 basis points to 3.6 percent.
Taking a look at investment trends, local investors in the $1 million to $10 million price tranche remain active, although widening pricing expectations between buyers and sellers may moderate a deal flow moving forward, Marcus & Millichap reported. A limited inventory of value-add listing will increase competition for these properties. Significant supply addition in the urban core may provide institutional investors with additional opportunities for top-tier assets.