Every tourist who strolls the sidewalks of the Windy City is awed by the skyline’s architecture. But we all should take another look because construction cranes are flying in growing numbers.
The latest count reveals there are at least 44 high-rise construction projects now underway in Chicago. And, dozens of other high-rise developments—apartment towers, hotels, and office buildings—are currently on the drawing board, or in the planning and approval stages.
In addition to the Loop, the hottest construction neighborhoods include the West Loop and fringe areas—around Wicker Park, Bucktown and Logan Square—along the Milwaukee Avenue Corridor, also known as the “Hipster Highway.”
What’s driving this high-rise construction boom? According to research by Marcus & Millichap, corporate relocation, steady job growth and shifting renter preferences are sparking the record-breaking apartment construction market.
“Corporate relocation from the suburbs to the city is bolstering urban job growth, headlined by the McDonald’s headquarters move announced in June,” Marcus & Millichap noted. Insight Global, Motorola Solutions and ConAgra are among the other firms making the migration.
These and other businesses are drawing talent from young, highly skilled workers who are attracted to city life. Last year about 65,400 jobs were created in Chicago, and 60,000 more will join the work force this year.
“Millennials overwhelmingly favor renting over homeownership and seek residences in highly urbanized city cores that offer walkability and a live-work-play lifestyle,” Marcus & Millichap said.
Developers have moved to capitalize on healthy renter demand, and construction has risen to unprecedented levels. Developers will complete 7,500 new apartments in Chicago this year, surpassing the total built in 2000—that last boom year—by 1,300 units. In 2015, Chicago gained more than 5,800 new apartments, and most of those were completed in the second half of last year.
Here are other trends noted by the Marcus & Millichap forecast:
• Tighter vacancies. “The swath of new development coming in the second half of 2016 will place some slight upward pressure on citywide apartment vacancy, however rates will remain below the five-year average.” So, the metro-wide vacancy rate is expected to shrink slightly to 3.7 percent in 2016.
• Higher rents. Average effective rents will rise 5.4 percent this year with Chicagoland renters paying an average of $1,380 per month. This rent hike comes on the heels of a 5.1 percent hike in 2015, so average rents on those fancy new high-rise digs have jumped a whopping 10.5 percent in two years.
• Cheap financing for buyers. Easy access to acquisition financing for apartment investors and strong market stability will keep demand elevated for Chicago apartments. New buyers of existing local apartment properties are expanding their presence in the market as a lack of alternative investments and ability to secure debt at low interest rates is encouraging trading activity.
“Chicago boasts a deep apartment building inventory affording investors with more buying opportunities at better cap rates that can be found in coastal markets,” Marcus & Millichap said. “First-year investment returns average in the low 6-percent range metro wide.”
Despite the glowing apartment outlook, Chicago and Illinois’ long-term budget issues and massive debt burdens have economists speculating about the future. Experts say if the apartment bubble bursts it could spark an economic downturn and the Windy City’s downtown development boom could stall.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.