Market Conditions: Luxury Apartment Rentals Hit Record High Price as Condos Stall
Other than at the luxury price point such as the Tribune Tower, there hasn’t been much condo construction downtown since the financial crisis.
Instead, developers have been building dozens of new high rises with thousands of apartments.
According to Crain’s Alby Gallun, 6 apartment buildings have reached new all-time highs rents per square footage, at over $4 per square feet.
Crain’s provides a great chart showing just where Chicago falls in terms of apartment rents.
Manhattan is the most expensive apartment market at an average of $6.25, but Chicago’s Streeterville/River North is the only heartland city to be over $3 per square foot at an overall average of $3.09.
And now, the prices are inching up over $4.00 in the Class A buildings. And they are renting.
Crain’s highlights two buildings: the Sinclair which is on Division Street in the Gold Coast (above the new Jewel store) and One Bennett Park in Streeterville.
The bets are paying off so far. The 390-unit Sinclair—where the average two-bedroom apartment rented last month for $4,804, or $4.04 per square foot—is more than 95 percent occupied two years after opening, according to real estate data provider CoStar Group. One Bennett Park, a 279-unit tower that opened in January, is nearly 70 percent leased.
“These people are choosing to rent, and they have disposable income,” says Ron DeVries, senior managing director in the Chicago office of Integra Realty Resources, an appraisal and consulting firm. “There’s also more opportunity for landlords to push up those rents because there’s not as much of an affordability issue.”
According to Crain’s an average 800 square foot 1-bedroom apartment in a Class A building, which is the top tier, rose 53% to $2648 a month over the last 10 years.
But even Class B apartment prices have soared. Class B are usually older buildings which lack some amenities such as in-unit washer/dryer or amenities so they can’t charge as much.
Class B prices are up 45% to $2,208 a month over the last 10 years.
What is also different this time is that the renters are apparently both young professionals as well as empty nesters who have sold their homes in the suburbs and now want to live downtown.
In the past, both groups would eventually be condo buyers.
Here’s what you get in One Bennett Park in Streeterville.
This 2-bedroom, 2 bath has a Robert A.M. Stern Architects designed white kitchen cabinets with Subzero, a Bosch dishwasher, quartz counter tops with waterfall edge.
It has 9’6″ ceilings with plank flooring.
The master bathroom has a double vanity and walk-in shower.
One Bennett Park has luxury apartments on the lower level and luxury condos on the top level. They have different entrances and amenities.
This 2-bedroom is listed for $4515 a month. There’s no square footage listed.
It faces north.
Is the desire to rent, instead of own, a sea change in behavior which could impact condo prices for years to come?
Is buying a condo a thing of the past?
Related is the developer on One Bennett Park. You can see the pictures and amenities here.
514 N. Peshtigo Ct: 2 bedrooms, 2 baths, no square footage listed
- Currently listed for $4515 a month
- Air conditioning
- Electrolux washer/dryer in the unit
- Bedroom #1: 12×13
- Bedroom #2: 11×12
- Living room: 12×14
- Dining room: 6×10
- Kitchen: 13×9
When the recession comes, believe me, the first market to take a hit will be the $2,648 per month 800 sq foot one bedrooms. That’s about the easiest way to cut expenses on a tight budget. Combine that with increased real estate taxes (which will ultimately work their way to the renter) and these luxury apartment owners will feel the pain.
Today’s luxury apartments are the canary in the coal mine, for those who are observing, just as 14 years ago, the glut of luxury mcmansions in the exurbs foretold of great pains to come.
lmao $4500 a month for a shoebox sized 2/2
and $2600 for a 800sqft 1/1?
are people smokin crack or what, who is paying these insane rents?
I mean god damn I thought my $2800 a month home rental I had for a few months was ridiculous but this is on a whole new level of dumb
The only thing I can think of is Chicago market has been under priced and is catching up with other equivalent cities in terms of housing costs.
Looks like about $50k of furniture, too, to get the proper AM Stern feel.
Wonder what they’d ask if they offered them furnished like that?
Renters only look at the cost of the unit’s monthly rent payment. The cost per-square-foot measure is not used by renters. The developers know this and are responding with smaller units. Less product without reducing prices worked for grocery items and it works in apartment buildings too.
“The average size of new apartments in the U.S. in 2018 is 941 square feet, 5 percent smaller than ten years ago”. That’s part of how the cost-per-square-foot is going up.
Source: https://www.rentcafe.com/blog/rental-market/real-estate-news/us-average-apartment-size-trends-downward/
Wonder how how big that 2BR is?
I’m actually surprised by how low the price is, especially since One Bennett’s 1737 FT² units start at $2M. Renting seems like a deal…if you have plenty of income and need to live your best life 24/7.
“Wonder how how big that 2BR is?”
Based on the floorplan, about 1100, +/- some (most likely minus) bc I’m unsure about the columns.
fwiw Zumper says Chicago apt ask prices are flat or slightly down m/m, down 25% from their Oct. 2015 survey but their data is suspect:
https://www.zumper.com/blog/2019/09/zumper-national-rent-report-september-2019/
The big story is WeWork’s collapse. Appraised at $65 billion last January, now worth less than $20 billion, a bigger % decline than Uber’s ipo being pitched at $120 billion and now trading at $60 billion, barely above Softbank’s cost.
I think Softbank is the new Ameriquest Mortgage, Masayoshi Son the new Roland Arnall. Next week another Fed rate cut on our way back to zirp, negative-after-inflation bank deposit rates, like 2009 thru 2018—the transfer of purchasing power from savers to borrowers for the sake of keeping asset prices afloat. More refi biz for Russ.
Fritz Kaegi announced he’s using a lower ‘cap rate’ but Illinois’ pension board hasn’t said the same. How much bigger would the current $150 unfunded liability be if they lowered their expected roi by 100? Or is it safe to assume the board can earn 500 bps more than 30 year treasuries?
I predict the board will swing for the fences, give more money to ‘alternative investments’ (PE, VC, EM), more money to people like Masayoshi Son, which, along with zirp, will help sustain the bubble.
Zumper is trash. Otherwise pretty good post.
The new buildings are not exactly the same as what was offered a decade ago. Amenities have greatly increased in these buildings. So pure sq. ft comparisons are lacking to an extent. These often have full gyms with social rooms giant pool decks and even djs and chefs on staff.
Rents in chicago will alway be limited to costs plus a reasonable profit since land is plentiful.
Since chicago real estate doesn’t appreciate due to the tax burden there really isn’t a good reason to buy. All tax benefits have disappeared at the federal level. And the stamp title broker expense makes the break even period extremely long. If you are condo living in the core it makes no sense to buy a cookie cutter condo when you can rent. Maintenance etc should be more efficient in the apt wrapper versus the condo wrapper. And you avoiding transfer taxes etc.
“are people smokin crack or what, who is paying these insane rents?”
The rental rate in downtown is 94 or 95% right now so EVERYONE is paying these rents, sonies. Heck, they aren’t that much cheaper, even in Hyde Park, in new buildings.
And this also tells you the strength of the Chicago job market. It truly is crushing it. UberEats just announced they would hire another 2,000 on top of the 1,000 they already have in Chicago. These are highly paid engineering and tech jobs.
The article says that the average income in One Bennett Park is $202,000.
“Today’s luxury apartments are the canary in the coal mine, for those who are observing, just as 14 years ago, the glut of luxury mcmansions in the exurbs foretold of great pains to come.”
But there’s no glut. That’s the thing. Not yet. If you’re at 95% rental rates, there’s no glut. They aren’t doing that much incentives to get new renters.
I will be interested to see how Wolf Point East rents. They just put the website name up on the building as the glass is mostly in. It is a spectacular building with great views right on the river. But presumably, if there’s a recession next year, it will be opening right in the midst of that slowdown.
But keep in mind, we aren’t going to see 2008-2009 ever again in our lifetimes. Will probably see 2001. Remember how slow it got just after 9/11. But it wasn’t that awful. Most people kept their jobs. It was just harder to change jobs and maybe you didn’t get a pay raise.
These rental rates seem absurd to our Midwestern sensibilities, but compared to NYC, DC, Boston, LA, SF, Seattle, Portland, etc they really aren’t out of line….
Chicago has always had cheap housing compared to other major Tier 1 cities. I suspect the rental inflation is because of the hot professional job market and the rents reflect that people are choosing Chicago over other cities. Rents are rising to meet the typical incomes of the professional class.
I also think people’s housing wants/needs have changed. They are choosing to rent luxury apartments. They rather rent a “condo like apartment” at a premium instead of buying.
“The rental rate in downtown is 94 or 95% right now so EVERYONE is paying these rents, sonies. Heck, they aren’t that much cheaper, even in Hyde Park, in new buildings.
And this also tells you the strength of the Chicago job market. It truly is crushing it. UberEats just announced they would hire another 2,000 on top of the 1,000 they already have in Chicago. These are highly paid engineering and tech jobs.
The article says that the average income in One Bennett Park is $202,000.”
RENT NOW OR BE PRICED OUT FOREVER!!!!!