Numerous deconversions, rehabilitations and ground-up developments have brought an unprecedented number of luxury units to market in Chicago. There is a finite supply of people able and willing to pay such high rents, so are we close to depleting those reserves?
There are two primary factors—one macro and one local—playing into the increasing volume of luxury supply in Chicago. Following the Great Recession, the U.S. economy has been on a historic run, helping to recoup losses and then some. Closer to home, Chicago has enjoyed voluminous corporate relocations in that time as well, and all those high-earning employees need a place to live.
We’re late in the cycle, however, and some economic indicators suggest that a plateau may be headed our way. Despite these factors, developers and brokers both seem to agree that even if the larger economy were to begin winding down, there are still multiple years’ worth of momentum behind Chicago’s luxury rental market.
“I am pretty confident—based on what has transpired and continues to transpire in terms of job growth and people moving into the core of the city—that the demand will be there for the best projects,” said Tom Weeks, executive general manager, Chicago at Lendlease. “People were saying back in 2017 and 2018 that we were going to have a tremendous oversupply. Though all that supply did come on market, it got absorbed pretty well and that is a testament to the strength of the downtown core.”
To the extent that there are any concerns, they are submarket to submarket. However, this apprehension is mild. River North witnessed plenty of new supply in 2017, for example, but concessions there have burned off now that the neighborhood has stabilized.
“Even with the high deliveries, we’ve seen very strong leasing at all of our existing properties in the Chicago market this year,” said Lindsey Senn, senior vice president, Fifield Cos. “I think when you look forward into 2020 and 2021 the supply may taper off.”
Fifield is developing the FitzGerald Associates Architects-designed 740 N. Aberdeen in the River West neighborhood, a community adjacent to sizzling communities like River North, Fulton Market and the Loop. According to Senn, the area is ideal for those who want a calm and quiet environment that is minutes from the culture, restaurants and nightlife of those nearby neighborhoods.
The relatively sleepy nature of River West is unlikely to change as it lies within one of the city’s ARO pilot areas. Developers have expressed reluctance about adding new units in these locations because of the mandated affordable housing that they would have to include. As a result, River West could be starved for new product in several years.
Throughout the Luxury Living Chicago Realty portfolio, relocations have accounted for 30 percent of the traffic through the first six months of 2019. According to Aaron Galvin, the brokerage’s CEO and co-founder, these are almost entirely due to companies like Google, Walgreens, Glassdoor and others transferring to or expanding within the CBD.
“The average income for our relocation clients is well over $100,000,” said Galvin, “and people moving here for high-paying jobs is what is fueling this kind of apartment growth.”
Galvin predicts that the West Loop is the next neighborhood that will see robust luxury apartment activity. The area, particularly in Fulton Market, has been a hotbed for office development and there are no indications that will slow down. As job relocation significantly drives housing, the market there for high-end rentals is ready to blow up.
Last year’s rental deliveries and those slated by the end of 2019 are heavily concentrated in the South Loop. There is nothing in the neighborhood’s pipeline after 2021, however, so any oversupply in that submarket should quickly stabilize.
“The Cooper, which we delivered in September, is leasing up tremendously well and is doing better than expected,” said Weeks. “And we had high expectations.”
“We achieved this tremendous rental lease up without having Southbank Park accessible because it’s been under construction,” Weeks continued. “I think once that park is open in the next couple of weeks, people are going to realize that this is a one-of-a-kind opportunity in the South Loop.”
Residents that rent by choice do so with high demands: exceptional amenities. And the luxury product now coming online brings the goods.
Developed by Hines, Wolf Point East could rest on the laurels of its location alone—at the confluence of the river branches as well as the confluence of the hot River North, West Loop and Loop submarkets. But the amenities are certainly there, curated by Soucie Horner, Ltd., including indoor/outdoor pools, a south-facing terrace, a full-floor fitness club, private coworking lounge with conference rooms, outdoor dog run and more.
“The entire master development of Wolf Point is a thoughtful and skyline-shaping impact. Now that you add Wolf Point East to that I think that the combination of location, architecture and exquisite interiors, including the units and amenities, is really going to attract the best of the best when it comes to the rental market,” said Galvin, whose firm is exclusively marketing and leasing Wolf Point East.
Lendlease and Magellan Development Group are co-developing two conjoined towers, Cirrus and Cascade, in the Lakeshore East master planned community. Also at a highly attractive location as they are going up literally where the river meets the lake, they too offer premium finishes and amenities. These include and indoor lap pool, children’s playroom, fitness center, massage and steam rooms, game room, screening room and a nearly one-acre park that will provide pedestrian access to both waterfronts.
“It’s a location that provides you the peace and tranquility of the Lakeshore East neighborhood itself, plus you have the dynamic amenities that are in the project as well as those you can get to by simply walking to the lakefront or the riverfront,” said Weeks. “I think that and the proximity to the CBD are going to appeal to anybody in the rental market wanting the best possible experience.”
Fifield’s boutique 740 N. Aberdeen is attracting tenants with a focus on the interiors of the units like European-style, condo-quality finishes. However, it also has the large-scale amenities of a new high-rise building including a pool, sun deck with cabanas, coworking space and a penthouse party room which will have sweeping views of the city.
“You are within minutes of everything but you can go home and have a quieter evening without having rowdy people outside,” said Senn. “We know that there are some residents who really prefer that.”
From the outside, it may appear that far too many luxury housing options are coming online in Chicago. But the lessons of the Great Recession are still fresh, and multifamily developers have actually been fairly restrained.
“Right now, we’re building the right kind of inventory, we’re hitting the right neighborhoods and I think everyone is relatively realistic about the rent growth within their current submarket,” said Galvin.
Looking at projections for deliveries into 2022, there are fewer planned units down the road than what Chicago has experienced in the recent past. In a year or two, barring considerable economic upheaval, the market might actually have an undersupply of luxury multifamily units.