Downtown Apartment Rents Hit Record High

by Peter Thomas Ricci

May 21, 2013

Rents for Downtown Chicago apartments hit a new high in 2013’s first quarter, though market trends suggest that such highs are only temporary.

Rents in Chicago’s downtown market outdid themselves again in 2013’s first quarter, with the price per square foot for the area’s top-tier, or Class A, buildings rising more than 5 percent from last year.

As Crain’s explained in a recent story on the increases, though, such record numbers could be temporary with thousands of new rental units set to hit the marketplace in 2013 and 2014.

Downtown Chicago Rental Market – Flying High…For Now

For the time being, though, landlords are living the dream in the downtown Chicago rental market:

Price per square foot in Class A buildings rose 1.9 percent from 2012’s fourth quarter to 2013’s first quarter, hitting $2.63 a square foot. Since bottoming in 2009, downtown rents for Class A units are now up 26 percent.
Rent increases, though, are not restricted to Class A buildings. Class B rentals rose even more aggressively from quarter-to-quarter, jumping 6.9 percent to $2.32 a square foot.

However, such increases are temporary. Though analysts anticipate rents to rise another 4 to 5 percent over the next year, developers are planning on unleashing a huge supply of rental units into the greater downtown rental markets. According to Crain’s, seven high-rises with 2,895 units will hit the market in 2013 alone, and another 2,330 will arrive in 2014. And beyond those immediate developments, Appraisal Research calculates that 26 additional developments are underway in the greater downtown area (including the eagerly anticipated Wolf Point), which will add another 6,292 units.

So in short, though lagging supply has allowed landlords to raise rents the last couple years, the shoe may be on the other foot come early 2014, with landlords competing for tenants with lower rents.

But could supply rise too quickly? As Crain’s pointed out, more than 5,200 rental units will hit the market over the next two years; however, according to Appraisal Research, the absorption rate for rentals in Chicago has averaged just 1,540 units per year since 2009, which would lead to a surplus of roughly 2,000 units.

Suffice to say, we could be looking at a much different downtown rental market, come 2015!