Market Conditions: Chicago’s Downtown Rental Market Roars Back in 2021
Last year, the story line being told about all the major cities, was that “the city” was doomed due to COVID fears, the BLM protests and riots and the ability of the professional workers to work-from-home, including working from anywhere in the country.
In Chicago, downtown condo sales, and prices, plunged and the rental towers saw their worst occupancy in decades.
But by this summer, with the economy reopening and entertainment events returning such as concerts and some street festivals, Chicago real estate started to recover.
Empty downtown apartments have filled up quickly in 2021.
From Crain’s:
“Hui is among the herd of renters who have stampeded into downtown Chicago this year, fueling a staggeringly swift turnaround of a market that was struggling amid an exodus of tenants just a year ago. The 31-year-old brand manager recently left Minneapolis to take a job with Tyson Foods in the West Loop, signing a lease for a one-bedroom unit at Presidential Towers, a huge apartment complex nearby.
“I’m really excited about it because it’s a nine-minute walk from work,” Hui says.
It’s one story among many explaining why downtown high-rises are full again and rents hit record highs in the second quarter, according to the Chicago office of Integra Realty Resources, an appraisal and consulting firm. The number of downtown apartments leased in the first half of 2021 already far exceeds the leasing volume for a good year.”
According to Crain’s, last year’s big incentives, with some luxury buildings given out 3 or 4 months “free” rent, seemed to work to lure in tenants.
“Brooke Miller moved from South Florida to Chicago in March after signing a lease at Spoke, an apartment building in River West, that included two months rent-free along with two months of free parking. A flight attendant, Miller didn’t have to move here for her job, but she grew up in Indiana and wanted to live in a big city that was close to her family.
“I came into the market at a great time,” she says.”
Where are all these tenants coming from?
Luxury Living, which handles 3,000 apartment rentals, including those on Wolf Point, is seeing strong relocation tenants.
So far this year, relocations have accounted for about half of Luxury Living’s leases—up from 40% in prior years—with people from outside Illinois representing 35% and suburban relocations representing 15%, he says. Last year, renters moving into the city from the Chicago suburbs accounted for about 25% of the total.
Occupancy fell to 86.5% in the fourth quarter of last year, the lowest since data began in 1998.
According to Integra, by the second quarter of 2021 it had already rebounded to 94.5%.
Over 3,300 apartments were absorbed in the quarter.
Integra is expecting 6500 apartments to be absorbed this year.
According to Crain’s data, that’s the highest level of absorption going back to 2003.
No other year has ever seen over 4,000 units absorbed.
Rents on Class A apartments also rose to a new record in the second quarter, of $3.41 per square foot. The prior record was set in 2019, pre-pandemic, at $3.31.
OneChicago, the massive 2 building development across from Holy Name Cathedral downtown, is nearing completion this fall.
The two buildings will have 735 apartments and 77 luxury condos along with a large Whole Foods and Lifetime Athletic Resort and Spa.
“Based on current leasing volumes, Letchinger expects that more than 100 apartments will be leased by Oct. 1, when the first residents start moving in. One Chicago rents so far average about $4.20 per square foot, among the highest in the city, he says.
“I am pleasantly surprised,” says Letchinger, founder and CEO of JDL Development.”
Is this the best it will ever be for downtown Chicago landlords?
And what does it mean for the downtown condo market, which has seen prices slide?
Will it soon be cheaper to buy a condo than rent an apartment, swinging momentum towards buying?
Why is the downtown apartment market so strong now? [Crain’s Chicago Business, by Alby Gallun, August 27, 2021]
I’ve read that COVID has some serious detrimental neurological implications. Perhaps a collective decline in IQ will benefit the downtown condo market?
Fed tapering & tightening on the horizon. Shiller PE ratio is at 39. What a great time to max out your leverage on a downtown property.
“Will it soon be cheaper to buy a condo than rent an apartment, swinging momentum towards buying?”
I think you have another year until the tide turns to this. When people go to renew and not only don’t get 2, 3, 4 months free but also get a 3% (or more?) increase on their rent people will start weighing their options.
If not evident come next summer or fall this will happen beginning in 2023. There aren’t enough apartments being built and the ones that do are all on the upper-end.
“There aren’t enough apartments being built and the ones that do are all on the upper-end.”
Did you mean “condos”?
“Did you mean “condos”
No meant apartments. This is true in regards to Condos too however the available supply of condos is significantly higher than apartments.
Over the next year or two I would expect the price of class A apartments to increase more than condos. The option for the renter will be to look at class B, stay with mom and dad, find a new neighborhood to rent, or buy a condo.
The renter is unlikely to pursue the former two compared to the latter.
“Is this the best it will ever be for downtown Chicago landlords?”
Which landlords? Anecdotally, it seems like a lot of small time landlords are getting bent over by the eviction moratorium and states slow rolling funds out to LL’s.
Anyone hearing LL’s increasing deposits for rental units?
“Which landlords?”
Downtown. As I said.
That usually means big buildings, including mid-rises and high rises.
“Anyone hearing LL’s increasing deposits for rental units?”
Not on the luxury units downtown.
“I think you have another year until the tide turns to this. When people go to renew and not only don’t get 2, 3, 4 months free but also get a 3% (or more?) increase on their rent people will start weighing their options.”
Agreed WP.
It’s at least another year away for the true recovery in the condo market as apartment rents continue to soar.
With the GDP expected to be above 5% over the next few quarters, seems like rental inventory will be tight and the landlords will have the upper hand.
Not many new condos being built. Eventually, that inventory will be absorbed as well (Silent Generation is still selling to move to Florida/Arizona but that will eventually end.)
“Fed tapering & tightening on the horizon. Shiller PE ratio is at 39. What a great time to max out your leverage on a downtown property.”
GDP over 5% and roaring 20s.
Never bet against America. Same thing was said in 1995.
Did anybody watch the video of what happened on state street this weekend? As someone who has lived downtown for the past 10+ years, I’m seriously considering selling to move away from this mess. The next run up in condo prices will make that decision much easier.
Agreed @duffer. It’s mayhem. Shootings in r north every night. The video is the epitome of what is happening when law enforcement is handcuffed on its ability to arrest and keep criminals locked up. I’ve lived in r north the last 10 years and only after the last two years have I seriously considered moving. (Purely because of the crime)
“GDP over 5%”
And how much of this is one-time or temporary government transfers…..
“and roaring 20s.”
That ended well.
“And how much of this is one-time or temporary government transfers…..”
It’s the bounce back WP. We’ve been above 5% for three quarters now. Next two should be more of the same, depending on delta outbreak impacts. Should still be above 5% though.
It won’t hold that high. Millennials need to be at peak earnings years to get above 4% sustained growth and that’s at least 10-15 years away. Last time we did that was when the Baby Boomers were at peak earnings in the late 1990s.
But we can enjoy it while it lasts the next few quarters before settling back down around 2% to 3%.
Everything in the economy is working in favor of Chicago from our transportation network of trains and planes, to our technology talent, to our quick dive into cannabis, to our expertise in finance, and to our great manufacturing.
Few cities in America have all the components of a global powerhouse like Chicago does. Really, it’s NYC, LA and Chicago. That’s it.
“Did anybody watch the video of what happened on state street this weekend?”
Yes. This is the same area where there have been murders in the past (pre-covid.) Notorious bad location.
Usually downtown bull: maybe you should try Fulton Market? It’s the new trendy area anyway.
They need to close that 7/11 near State and Hubbard. I used to work in that area and had a parking space near that 7/11. I would avoid walking past there because it was so awful. The vagrants would constantly harass people who walked by that corner. A woman was assaulted in the bookstore next door. A friend of a friend was murdered right in front of the 7/11 while people just looked on and watched.
What is so appealing to criminals about a 7/11? Why do the owners all seem to be totally cool with vagrants hanging out in front day and night? Do they earn enough money from threatening people to buy booze and cigarettes?
“We’ve been above 5% for three quarters now.”
Your realize on a compounded rate real GDP growth will be <1.0% since 2019 assuming 5.5% growth in 2021…. HOT!!
"Millennials need to be at peak earnings years to get above 4% sustained growth and that’s at least 10-15 years away."
Huh? Define "peak earnings" seems very subjective. Also, remember the other side of the ledger which is expenses. The 90's didn't entail crushing student loans, $25K+ auto-loans, expensive rentals, $1,000 IPhones every 2 – 3 years, and $100 lululemon leggings.
"Everything in the economy is working in favor of Chicago from our transportation network of trains and planes, to our technology talent, to our quick dive into cannabis, to our expertise in finance, and to our great manufacturing."
Rivian isn't setting up their next battery plant in Illinois. Pension obligations are also not favorable to new business start-ups.
“the bookstore next door.”
??? Bookstore? When was the a bookstore next door? in the 90s?
“Your realize on a compounded rate real GDP growth will be <1.0% since 2019 assuming 5.5% growth in 2021…. HOT!!"
Yep. Our economy shutdown WP. In case you didn't notice. Worse GDP ever.
Duh.
Also, in case you didn't notice, yes, the economy is red hot right now.
But the bears will go down with that ship for the next several years. "Chicago is doomed" is looking pretty tired at this point.
I recently read an interesting take on the "doomed" industrial cities and what the census actually told us about what is going on.
Yes, Illinois lost population the last 10 years but the city of Chicago, and its suburbs, did not. Other industrial midwest cities also gained in population like Cincinnati and Detroit.
The loss of population is coming from the rural areas.
Meanwhile, GDP out of the 10 largest cities in America actually soared 32% over the last 10 years even though population growth wasn't great in several of them including NYC and Chicago.
Basically, the old mantra of population growth = economic power is over. The economy has entered into another phase where simply having people doesn't make you an economic power anymore. The knowledge/information economy, especially in finance and tech, has changed that.
So 100 people can be moving to San Antonio every day, and it's one of the top 10 largest cities in the country, but economically, it is WAY behind NY, LA, Chicago, Boston, Washington DC and San Francisco.
People no longer means prosperity.
“Also, in case you didn’t notice, yes, the economy is red hot right now”
If it was redhot why aren’t we seeing the best numbers ever after having the worst numbers ever due to government intervention? Why would the Atlanta and NY Fed, along with Banks be lowering GDP expectations over the past month or two…. If it was redhot it would be staying the same and likely be revised higher.
“Basically, the old mantra of population growth = economic power is over.”
When was this ever really a thing? New York, LA, Chicago could stagnate or slightly decline in population for the next 3+ decades and they would still be the top 3 (or in the top 4 if Chicago is passed by Houston) of population in the country with the highest (potentially second highest in the coming decades) GDP in the world.
It took decades of population decline for Detroit to get knocked down a couple rungs.
“The economy has entered into another phase where simply having people doesn’t make you an economic power anymore.”
What economy are we talking about? If you looked at this globally this was never a thing. See India, China, and Pakistan populations compared to the US… Compare the entire EU to the US……
“So 100 people can be moving to San Antonio every day, and it’s one of the top 10 largest cities in the country, but economically, it is WAY behind NY, LA, Chicago, Boston, Washington DC and San Francisco.”
You are comparing San Antonio with 1.5MM people to LA with almost 4MM people and NYC with over 8MM people. You are comparing landlocked San Fran of 47 square miles with San Antonio’s 505 square miles.
You are comparing Washington DC which is surrounded by 4 of the top 6 wealthiest counties in the country to San Antonio County which is the second poorest major county in Texas with a per Capita income of $25K behind only El Paso.
This is why their is GDP per capita.
“People no longer means prosperity.”
It never did in the history of the world…..
“San Antonio County”
Funny!
Hidalgo is about the same pop as El Paso, so if EP counts as ‘major’, so does Hidalgo.
And Bexar’s median HHI (2019) is ~96% of Dallas’ and ~92.5% of Harris’, so it’s not a huge difference there.
It is only ~75% of Travis’–so, yes, SA is 100% way behind Austin, which is the most direct ‘competitor’, rather than any county in DFW or Houston metros, or either of the big border counties.
There was a thread about increasing violence in the city through a separate post a few weeks/months back. I recall Sabrina outright dismissing that there was an increase in violence by pointing to how bad things were in the 90’s and that the city is nowhere near that.
Well here are the facts from the liberal NPR…..
“As summer winds down, Chicago is on pace to have its highest annual murder tally in a quarter century.”
“Chicago appears headed toward its highest annual homicide total since 1996, the tail end of a crime wave fueled by crack cocaine.”
“Recent months have been particularly deadly. CPD reported 105 murders in July and 78 in August.”
Sabrina lives in an alternative universe or just a “green zone” with a gate and security guard but more likely some suburb.
When you come back and say well every major city is having an increase in violence (typical democratic talking point) not just Chicago please cite the cities that are seeing the highest murder rates in a quarter of a century…
https://www.wbez.org/stories/at-summers-end-chicago-murders-outpacing-any-year-in-a-quarter-century/5385cdb4-ee0e-4d10-bf38-4e85daa98fa0
“If it was redhot why aren’t we seeing the best numbers ever”
corporate earnings are at record levels. there’s that.
https://www.youtube.com/watch?v=jk1eU_zlf3s&t=6200s
“not just Chicago please cite the cities that are seeing the highest murder rates in a quarter of a century”
I’ll put a tenner on NOLA getting to their ’96 level of ~71/100k. With the smaller post-Katrina population, that would be about 274, after 195 last year.
St Louis can’t have a 25 year high as the 90s peak was 69/100k in ’93, and they already blew by that last year with ~89/100k. But the rate this year is down, and likely to be “only” all-time top 8 or so.
Indy is likely to have the highest rate in its history this year, and as of 2 weeks ago had a higher rate than Chicago.
Philly peaked at ~31.5/100k in 1990, and basically matched that last year (total was 500 in ’90, and 499 in ’20; pop basically the same). They’re on pace to top that this year, with 300 thru July 15.
Yeah, I know, not peer cities.
From Crain’s:
In the first seven months of 2021, 654 condos and townhouses sold in the Loop, according to data released in mid-August by the Chicago Association of Realtors, Midwest Real Estate Data and Showing Time. That’s an increase of 51% over the number of attached homes—condos and townhouses—sold in the same period in 2019, the last normal year.
Adding the Near North, West and South sides to the Loop, there were 3,997 condo and townhouse sales in the first seven months of 2021, eclipsing by about 1% the 3,965 sales in the same stretch of 2019.
The comparison to 2019 tells it loud and clear: Downtown condo sales are back.
https://www.chicagobusiness.com/residential-real-estate/chicagos-downtown-condo-market-rebounds-after-covid-slowdown
There are still deals downtown.
From Crain’s:
While sales are rising, prices aren’t, as the Frisches learned, and that’s a big part of what’s fueling the sales surge.
“Prices are not back to pre-pandemic levels,” said Nancy McAdam, the Jameson Sotheby’s International Realty agent who represented the sellers of the condo the Frisches bought. “That’s what’s bringing the buyers in; they’re still getting these good prices.”
https://www.chicagobusiness.com/residential-real-estate/chicagos-downtown-condo-market-rebounds-after-covid-slowdown
While sales are soaring in many downtown neighborhoods, the Near North is not.
Michigan Avenue is NOT a selling point right now. It has a 20%+ vacancy. The Macy’s in WaterTower is shuttered. The big Gap is empty.
It will be interesting to see if that perception impacts leasing at One Chicago which is just 2 blocks east and near the Red Line El stop.
From Crain’s:
While total condo sales downtown are up beyond 2019 levels, the Near North community area stands out as the only one of the four where condo and townhouse sales have not caught up with 2019. With 1,776 sales through the end of July, the Near North is 25% behind 2019’s sales tally.
“It’s primarily because of crime,” said Jim Kinney, a Baird & Warner agent who’s been selling homes in the Near North neighborhoods since the 1990s.
“Every day you read in the paper that there was something in the core area around Michigan Avenue,” Kinney said. “Carjacking, smash-and-grab.”
https://www.chicagobusiness.com/residential-real-estate/chicagos-downtown-condo-market-rebounds-after-covid-slowdown
“Basically, the old mantra of population growth = economic power is over.”
“When was this ever really a thing?”
For the last 100 years, economists have been determining economic strength of US cities based on population gains/loss.
“It never did in the history of the world…..”
Gosh, the last 1000 years. Population meant power: politically and economically.
Cities have always ruled, WP.
Read. Study.
But for the first time, population isn’t the key factor to economic superiority. The global economy has changed. You don’t need as many people in a knowledge economy like you do in an industrial one.
“You are comparing San Antonio with 1.5MM people to LA with almost 4MM people and NYC with over 8MM people. You are comparing landlocked San Fran of 47 square miles with San Antonio’s 505 square miles.”
Yes. When you visit, the proud locals will gladly tell you that they are “taking business away from Chicago” and that they are the “fastest growing city” in America (this was pre-pandemic.) They talk about the 100 people moving to the city every day and are excited about it.
But, as you point out, their economic strength isn’t anywhere even close to that of Chicago.
But the bears on this blog go on and on about “everyone” moving out of Chicago and Illinois so it is “doomed.” When it’s stronger, economically, than ever before (at least in its largest cities.)
Chicago ranks 5th in VC funding nationwide now. It’s still low compared to the Bay Area. But San Antonio, and most of the “hot” Southeast, doesn’t even register in VC funding except Miami.
Murder isn’t the best metric of crime in Chicago. You are far more likely to be a victim of a violent crime other than murder. So once a year I summarize the aggravated assault and battery data for the city and map it. Interestingly, those numbers haven’t changed much from one year to the next over the last few years.
Here is my latest summary: https://www.chicagonow.com/getting-real/2021/08/chicagos-safest-and-most-dangerous-neighborhoods-2021-assault-battery/
You can expand that map to full screen. What you will notice is that high traffic areas are the most dangerous. Attacks tend to cluster along busy streets – e.g. State Street – for whatever reason. More people = more victims and/ or more perps?
“Murder isn’t the best metric of crime in Chicago. You are far more likely to be a victim of a violent crime other than murder.”
One would argue a person can be a victim of violent crime multiple times in their lives whereas you can only be murdered once….
“Interestingly, those numbers haven’t changed much from one year to the next over the last few years.”
What I’ve noticed anecdotally is the increased brazenness in some of the crime that has been happening. It’s one thing to have to be carjacked because you left your keys in the ignition as you run in somewhere for a few minutes vs. 3 people hopping out of a car at a stop sign and pointing a gun in your face carjacking you. Both count as one motor vehicle theft in the stat sheet.
Same as drunk people doing drunk things like talking smack and getting into a fight with each other outside the local bar vs. random chef gets off of work is walking down state street gets sucker punched for no reason, robbed, has shoes stolen, and lies in the middle of the street for 6+ minutes. Both are treated equally in the spreadsheet.
Same as getting into an argument with someone on the CTA and a fight occurring vs. getting off the red line Jackson stop at 11 pm and after you walk up the stairs onto the sidewalk 10+ people surround you and rob you. Both treated equally in the spreadsheet.
The other observation is the brazenness of certain crimes are occurring in the “green zones” now with more regularity. This group of people likely ignored or only saw/heard about it on the news occurring in the “non-green zones” but now that it’s effecting where they live or go it’s now a “problem” and are changing their attitude about crime.
Crime has always been an issue in the city in the “non-green zones” that was ignored by the upper middle class white liberals, business community, and elite of the city. That seems to be shifting somewhat quickly now that they are seeing these same crimes happen in their neighborhood with some regularity.
“Attacks tend to cluster along busy streets – e.g. State Street – for whatever reason. More people = more victims and/ or more perps?”
Yes State Street is busy in River North during the day but how busy is it at midnight? Most of the foot and vehicle traffic are a few blocks west at this time.
“It’s one thing to have to be carjacked because you left your keys in the ignition as you run in somewhere”
That’s not even prosecutable grand theft in many states. I’m not sure about Illinois–though it is a ticketable offense to have left your car running and unattended.
So, yeah, it’s very different to suffer an armed robbery/GTA.
IMO, they shouldn’t be showing up the same in the crime stats.
WTF? Please prove that BLM is racist. Then prove that BLM had anything to do with who our mayoral candidates were. Then prove that Lightfoot discouraged the police. Then prove that discouraged police resulted in the attack on State St.
Your brain seems to be wired to accept without question a long chain of non-sequiturs.
“Yes State Street is busy in River North during the day but how busy is it at midnight? Most of the foot and vehicle traffic are a few blocks west at this time.”
That stretch of State Street is NOTORIOUS.
There was a murder there a few years ago where a car just drove over a man after midnight, caught on video the same way this attack was caught. Why do you think they have cameras right there?
Notorious.
And one of the suspects wasn’t even a Chicago resident. He’s allegedly from Wheeling.
“When you come back and say well every major city is having an increase in violence (typical democratic talking point) not just Chicago please cite the cities that are seeing the highest murder rates in a quarter of a century…”
How about Atlanta, too?
https://www.11alive.com/article/news/verify/verify-atlanta-crime-versus-chicago/85-d157ec52-ab54-4a99-98f1-5ab9d97ea86b
don’t worry Lori Lighthead is going to start suing gang members so that should really drop the crime rate significantly!
“suing gang members”
Not top notch stuff.
But the “it’s only Chicago” thing was pretty darn wrong.