Homeownership once was called the American Dream, but Chicago’s downtown apartment building boom has created a spike in renters, putting owners in second place.
The Chicago area’s apartment renting population skyrocketed 12 percent between 2006 and 2013, reported a new study by New York University’s Furman Center and Capital One. And, today there are more renters in the Windy City than homeowners.
Appraisal Research Counselors Ltd. reported that 2,247 new downtown units were leased in 2014, compared with an average of about 1,100 units absorbed each year for the past three years.
“We are projecting that 2,400 new units will be rented per year downtown for the next two years,” said Ron DeVries, vice president of Appraisal Research. The Benchmark Report targeted the Loop, the New East Side, Gold Coast, South Streeterville, River North, River West, the West Loop and South Loop.
“There now are 16 high-rise buildings containing 5,936 units under construction downtown with deliveries scheduled for 2015 or 2016,” DeVries said. “We are projecting that construction will be started on another six buildings containing about 1,700 units in 2015, with deliveries scheduled for 2016.”
If you are shopping for a new luxury apartment downtown in 2015, better bring a fat wallet.
Appraisal Research is forecasting a 10.9 percent hike in luxury apartment rents in 2015, while tenants in the Class A market will pay 8.37 percent more. Rents in Class B buildings are expected to rise 5.75 percent.
Appraisal Research also noted that profit margins were at historic highs for downtown new-construction units. Apartment renting is becoming a high-tech business, with landlords in numerous buildings converting to revenue management software programs that continually adjust rents depending on demand for various unit types.
Despite the rent hikes, apartment occupancy downtown remains high. Luxury high-rises and Class A buildings are 93.6 percent leased. Class B occupancies are not far behind at 92.2 percent.
To compete with the prestigious newer high-rises, some older downtown properties are reportedly doing “off market” rental incentive specials, including gift cards, a waiver of administrative fees and reduced auto parking rates, DeVries said.
The Appraisal Research outlook noted that if the downtown employment market improves notably in 2015 “an upside potential exists for rents and overall apartment demand.”
Net rents in top luxury downtown high-rises are skyrocketing, with tenants paying an average of $3.32 per square foot, or $2,928 a month for the average 882-square-foot apartment, Appraisal Research reported.
In 2014, such luxury high-rises as One Eleven at 111 W. Wacker in the Loop, 850 N. Lake Shore Drive in Streeterville, 73 E. Lake in the Loop, Catalyst at 123 N. Des Plaines in the West Loop and were added to the downtown market.
Net rents are $3.60 per square foot at the swank 504-unit One Eleven, or $3,240 a month for a typical 900-square-foot unit, the highest net-effective rent downtown. Rents ranged from $3.35 to $3.55 a square foot at Aqua in the New East Side, Optima Center in Streeterville, Walton on the Park in the Gold Coast and AMLI River North in River North, Appraisal Research reported.
However, new downtown apartments are getting some heavy competition from rental condominiums. In the fourth quarter of 2014, a total 1,107 condo units were rented.
Over the past 12 months, 6,245 condo units were leased downtown via Multiple Listing Services, compared with 5,781 units in the prior 12-month period—an 8 percent increase.
Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. For more information, visit www.escapingcondojail.com.