Market Conditions: Downtown Apartment Rents Expected to Rise in 2022
In 2020, when the pandemic hit, thousands moved out of downtown Chicago, leaving apartment buildings with their lowest occupancy rate in decades.
Some buildings offered up to 4 months free rent to lure renters back.
Apparently, it worked.
Those deals are long gone now.
According to Integra Realty Resources, downtown apartment occupancy rates jumped to 94.5% in the third quarter from 86.5% at the end of 2020.
They see rents at downtown apartment buildings possibly rising 5% to 7% in 2022 due to lack of supply as demand remains strong.
From Crain’s:
Integra says that rents are back to mid-2019 levels in Class A apartments.
They aren’t quite back to all-time highs, but could get there in 2022.
In every other real estate cycle in Chicago, it has gone from apartments, to condos, to back to apartments.
Could this be the start of the “condo” phase of this cycle after 10 years of building mostly apartments?
If condos are cheaper than renting, as rents rise, will the pendulum swing back to being owners?
More rent hikes coming to downtown apartment market [Crain’s Chicago Business, by Alby Gallun, December 20, 2021]
“ Could this be the start of the “condo” phase of this cycle after 10 years of building mostly apartments?
If condos are cheaper than renting, as rents rise, will the pendulum swing back to being owners?”
It’s odd with your response to COVID that you’d be bullish on dense housing options.
If/when rates rise it’s going to have heavier impact on condos.
I know some millennials who earn around 100k-120k/yr but can’t afford to buy a condo because they have not saved up for a down payment and don’t have parents who are able or willing to cough up tens of thousands of dollars to help them. They rent $3000+/mo apartments and this is exactly who a lot of these developers are targeting with their “luxury” apartment buildings. I say “luxury” because its mostly a facade. Real luxury is well beyond $3k per month.
I’ll be interested to see if vaccine mandates in Chicago affect young peoples desires to remain in the city. It will depend on how long this lasts. I don’t agree with it but I understand politically why it’s being done. If it’s 2 or 3 months it won’t have any effect. If it’s May or June I think it will start effecting desirability to live in the city especially if crime stays the way it is and CTU starts issuing strike statements in the next couple weeks.
https://chicago.suntimes.com/city-hall/2021/12/21/22848156/vaccination-vaccine-required-chicago-restaurants-employees-lightfoot-covid-coronavirus-toia
“If/when rates rise it’s going to have heavier impact on condos.”
But inflation is higher than what will happen to your mortgage payment when rates rise.
Rents were up 30% this year year-over-year. Of course, they collapsed in 2020, but that’s a pretty steep spike. And another 5% or 7% next year? It’s WAY cheaper to buy the same square footage downtown now. Or in Fulton Market.
In every cycle, people have done the math and have decided to start buying. Millennials aren’t going to be any different. Also, we still have Baby Boomers who want to retire downtown so they are buying up the larger units. That’s why so many of the deals were snapped up in the last 2 years.
I still can’t believe they leased over 6,000 apartments downtown this year. Yes, a lot of people left last year, so there was plenty of excess. But 6,000.
WOW.
And that is with employers really NOT going back to the office yet. A few have started to do the hybrid, but it can’t be more than 50% of those downtown.
But if you are right out of school and starting a new job, you are still going to get that apartment even if working from home, right? Who wants to move in with the parents in the suburbs or, heaven forbid, rent in the suburbs. And if they’re from another state, perhaps they didn’t want to stay there so they still wanted to move into their downtown apartment even though working from home.
Wow.
Housing market in both rentals and to buy, are going to be red hot next year when most businesses WILL have people back in their offices and we get a true “reopening.”
Sizzle.
“But inflation is higher than what will happen to your mortgage payment when rates rise.”
Are you trying to make the case that inflation will have a larger impact on rents Vs Mortgages? Maybe/Maybe not. There’s a much larger substitution pool for apartment dwellers Vs condo owners.
“Rents were up 30% this year year-over-year. Of course, they collapsed in 2020, but that’s a pretty steep spike. And another 5% or 7% next year? It’s WAY cheaper to buy the same square footage downtown now. Or in Fulton Market.”
Link + You have a terrible history of comparing apples and oranges.
“In every cycle, people have done the math and have decided to start buying. Millennials aren’t going to be any different. Also, we still have Baby Boomers who want to retire downtown so they are buying up the larger units. That’s why so many of the deals were snapped up in the last 2 years”
I though Millennials were all about the experience. Do they want to buy if that means giving up their fancy coffee drinks and Avocado Toast?
“But if you are right out of school and starting a new job, you are still going to get that apartment even if working from home, right? Who wants to move in with the parents in the suburbs or, heaven forbid, rent in the suburbs.”
more than ever college graduates are living with their parents after school
https://www.pewresearch.org/social-trends/2016/05/24/for-first-time-in-modern-era-living-with-parents-edges-out-other-living-arrangements-for-18-to-34-year-olds/
‘
but yeah sure if you’re some rich little shit with access to the bank of mom and dad yeah they can afford a 3k a month rental in the city lol
“But if you are right out of school and starting a new job, you are still going to get that apartment even if working from home, right?”
50% of 2020 college grads don’t have full time jobs yet…. a proportion of the 50% that do didn’t get a job in the city, don’t want to live in the city, or the job that did get doesn’t pays enough to live in the city.
There’s also the people that got the job in the city, that pays enough, and they desire to live in the city but won’t for a few years as their friends fall in the buckets of the first paragraph and/or they have student loans that they would like to pay down/want to build some savings before moving out and/or don’t want to live with strangers if they can’t afford a studio or one bedroom.
https://www.cnbc.com/2021/12/10/50percent-of-the-class-of-2020-got-full-time-jobs-6-months-after-graduation.html
“Housing market in both rentals and to buy, are going to be red hot next year when most businesses WILL have people back in their offices and we get a true “reopening.””
Define Red Hot
When next year?
Wow CPS CEO today already saying that switching back to remote learning possible and is starting preparations for this.
And Sabrina looks to be completely wrong and aloof again….
“Chicago Public Schools leaders could move classrooms back to remote learning in the city’s least vaccinated neighborhoods if COVID-19 cases continue to surge, the district’s CEO announced Tuesday.”
“You are gonna see us transitioning more classrooms to remote when we see [cases rise]. As a parent, I know how difficult that is for families, but we have to take that conservative approach, especially as cases are rising,” Martinez said.”
https://blockclubchicago.org/2021/12/21/cps-prepared-to-switch-to-remote-learning-in-citys-least-vaccinated-areas-if-classroom-cases-spike/
A couple observations as I’m potentially listing my condo this spring….it’s in a top downtown building, amazing view and likely still priced at around 2005 preconstruction levels! I’m amazed at how stagnant Chicago downtown condo pricing has remained even before covid hit. The cost of construction labor and materials has soared while rates have dropped and it’s really one of the few areas in the US that prices have been frozen for so long. From within the building, I feel that anyone who wanted to leave has already done so in the past year so the fire sale prices have passed as well.
That said, having owned it for 13 years at same preconstruction price (700-800k) from original owner in 2005, it’s still hard to see any worthwhile price appreciation become a reality. Tempting to continue carrying it as a vacation home but the market also seems there to sell…really tough choice.
“In every cycle, people have done the math and have decided to start buying. Millennials aren’t going to be any different.”
Sabrina keeps pushing this narrative of millennial first time buyers driving the market. The data today does not support this thesis.
“First-time buyers comprised just 26% of November transactions, down from 32% a year ago and matching the lowest share since 2014, the NAR report showed.”
“All-cash sales accounted for 24% of transactions in November, while investors — who make up many of the cash sales — comprised 15% of November contract signings.”
https://finance.yahoo.com/news/u-existing-home-sales-advance-150001661.html
“Sabrina keeps pushing this narrative of millennial first time buyers driving the market. The data today does not support this thesis.”
First time buyers were responsible for 26% of all sales in November, investors were 15% and all cash were 24%.
How can you say that Millennials aren’t driving this market? They are nearly ALL of first time buyers, with some GenZ thrown in there. GenZ is now making up about 3% of all mortgages. Millennnials now 67% of all mortgages.
A healthy market is when first time buyers are driving it. Hooray! That is actually happening.
Demographics. Demographics. Demographics.
Won’t end until 2024, at the earliest. Largest group of Millennials is buying now.
The all cash figures are interesting. Lots of Baby Boomers moving around who are taking their housing equity to their retirement homes or even second homes.
“.it’s in a top downtown building, amazing view and likely still priced at around 2005 preconstruction levels!”
2005 was a bubble. People who bought then are struggling to make anything. It was artificially high prices.
Kind of like buying Microsoft in 1999. You had to wait until 2013 to even get back to same price. That’s the reality.
hawks, if you really are in a “top” building, and inventory has fallen, then the price should be better than what you could have sold for in 2020 or 2021. Again, it’s really just economics.
But I would tell people who want to sell downtown to wait until inventory is absorbed. We’re not there yet. But it will be building by building and neighborhood by neighborhood. There are always certain buildings that are in demand. For instance, No 9 Walton has been selling at a premium since the building opened because it’s considered one of the top luxury buildings.
Additionally, some neighborhoods, like Old Town, have always sold at a premium, even during the housing bust, because demand has remained elevated.
The Loop is going to struggle until workers and events like conventions return in larger numbers.
Real estate is so specific. And buyers want renovated and “new” so I would make sure it was up to the standards of the new rentals.
Crain’s has an update on the One Chicago project, both leasing and condo sales.
The taller condo tower hasn’t finished construction yet and isn’t yet open.
But I’m shocked at how quickly they are renting the shorter tower, which is leasing at some of the highest price points in the city. They have only been open 2 months and it’s during the slowest time of the year for leasing.
From Crain’s:
“JDL has leased about 40% of the 459 apartments in the shorter building, at 23 W. Chicago Ave., and about 20 units in the taller tower, Letchinger said. Rents are about 8% higher than JDL’s projections, and construction of the entire project is about six months ahead of schedule, he said. Buyers have signed contracts for about 20 of the 77 condos, he said. Life Time will open in mid-January.”
https://www.chicagobusiness.com/commercial-real-estate/jdl-development-close-kicking-north-union-project-moody-bible-site
Additionally, Crain’s has an update on the Moody Bible site.
They have bought the land and gotten the loans to start construction. It’s a $1.2 billion project which will bring about 2700 units downtown.
They are starting on 2 apartment buildings on Wells first as apartments are so hot.
“How can you say that Millennials aren’t driving this market? They are nearly ALL of first time buyers, with some GenZ thrown in there. GenZ is now making up about 3% of all mortgages. Millennnials now 67% of all mortgages.”
Link?
“And Sabrina looks to be completely wrong and aloof again….”
No parents on earth want to go back to online learning. None.
But if the outbreak is running out of control throughout your society, with your hospitals overwhelmed, then you may have to make different decisions. I’m glad they’re going to get ready in case it happens. No use being surprised. The outbreak is here, just a matter of if the scientists are going to be correct with their models showing a huge outbreak or not.
They have a few weeks to see what develops. It’s good the kids are out of school right now.
Same with the colleges. Outbreaks would be huge on college campuses even with the vaccinations as we saw at Cornell with 1,000 cases.
But what happens in January? They are requiring the boosters to come back to campus.
“They are starting on 2 apartment buildings on Wells first as apartments are so hot.”
So I guess this is a no on the rotation to condos?
Here’s your link JohnnyU. I have linked to it previously. Data is the data.
Millennials are the largest generation in US history. Why do people keep insisting that they aren’t buying homes or doing all the same things the Baby Boomers and GenXers did?
https://www.wsj.com/articles/millennials-are-supercharging-the-housing-market-11639496815
“So I guess this is a no on the rotation to condos?”
Not necessarily. These buildings won’t be finished for about 2 years. In the last cycle, they were building the apartment towers and quickly switched them to condos because the demand was surging there.
The Sterling in River North was already completed as an apartment building when they switched it to condos. The Fordham in River North was also built originally as apartments but I don’t think it was completed by the time they decided to sell the units instead. So the Fordham got upgraded kitchens and baths.
“How can you say that Millennials aren’t driving this market? They are nearly ALL of first time buyers, with some GenZ thrown in there.”
Because it was the lowest percentage of first time sales since 2014….
“First-time buyers comprised just 26% of November transactions, down from 32% a year ago and matching the lowest share since 2014, the NAR report showed.”
“No parents on earth want to go back to online learning. None.”
Based on CPS’ statement it’s not up to the parents. They are more worried about the teachers and support staff i.e. scared of CTU. CPS is publicly negotiating against its own interest and trying to win a PR battle.
“Same with the colleges. Outbreaks would be huge on college campuses even with the vaccinations as we saw at Cornell with 1,000 cases.”
How many hospitalizations? Cornell required all students to be vaccinated in the fall but required finals to be taken remotely and will be remote in January. Again, doesn’t seem like the administration cares much about the students or their parents.
“But what happens in January? They are requiring the boosters to come back to campus.”
Yet Elizabeth Warren and plenty of others who have been boosted already got breakthrough cases. The colleges are already shutting the campuses down due to case counts even though everyone is vaccinated. So they are requiring people to get boosters cases will still occur and they will shutdown the school again just like they are doing now. What’s the point?
More data keeps coming out every day that Omicron is much less severe than previous variants and the original virus. New study’s came out in both the UK and South Africa today.
Further, the UK lowered required quarantined time today for infected health care employees from 10 days to 7 days.
Axios reported today that the medical consensus is people only need to quarantine for 5 days and Dr.’s offices are already practicing this across the country.
Yet the CDC is twitting its thumbs again still saying its 10 days. Don’t worry though Fauci is “looking into it”. Maybe by summer they will revise this. What a joke. The bureaucratic incompetency in this country is astounding. We have a national test shortage again. It’s been nearly two years….
https://www.axios.com/rethinking-the-covid-isolation-period-9846bdf8-6a83-40a5-b1f7-65f694853785.html
“So I guess this is a no on the rotation to condos?”
Must be first time renters moving downtown….
“Here’s your link JohnnyU. I have linked to it previously. Data is the data.
Millennials are the largest generation in US history. Why do people keep insisting that they aren’t buying homes or doing all the same things the Baby Boomers and GenXers did?
https://www.wsj.com/articles/millennials-are-supercharging-the-housing-market-11639496815”
Yeah, unfortunately thats not what the article states
its 67% of first time mortgages, not 67% of all mortgages as you stated.
From the source (CoreLogic) – Millennials have made up the largest share of home purchase mortgage applications since 2016, accounting for 51 percent of home-purchase mortgage applications
And applications don’t necessarily equal mortgages
This is why you are an unreliable narrator
“Must be first time renters moving downtown….”
EVERYONE is moving downtown. Sales data from November is very interesting too. The move to the suburbs is over. People are moving back downtown, to both rentals, condos, homes.
The city is red hot.
“How many hospitalizations? Cornell required all students to be vaccinated in the fall but required finals to be taken remotely and will be remote in January. Again, doesn’t seem like the administration cares much about the students or their parents.”
Again, the people on this blog don’t seem to have grasped the differences with Omicron.
Cornell had 100% vaccination rates. It didn’t matter. 1,000 tested positive. They shut down classes and sent everyone home early. They were near the end of the term anyway.
Hopefully, there would be few hospitalizations among these cases. But we don’t know how many were boosted, which would give them even greater protection.
This will be the issue going forward. Everyone is going to get it. The city’s new vaccinated only bars, restaurants, sporting events rules are irrelevant for the Omicron. The vaccinated can get it and spread it all the same. And by the time it starts on Jan 3, Chicago’s outbreak is going to be huge.
New record case highs in UK again today. Over 100,000 for the first time. Their models are showing a million cases a day at the peak. But the cases won’t tell the story. It’s about hospitalizations.
Hi Sabrina Smolette – guess you missed commenting on this
I’ll repost it for you
Yeah, unfortunately thats not what the article states
its 67% of first time mortgages, not 67% of all mortgages as you stated.
From the source (CoreLogic) – Millennials have made up the largest share of home purchase mortgage applications since 2016, accounting for 51 percent of home-purchase mortgage applications
And applications don’t necessarily equal mortgages
This is why you are an unreliable narrator
“Yeah, unfortunately thats not what the article states
its 67% of first time mortgages, not 67% of all mortgages as you stated.
From the source (CoreLogic) – Millennials have made up the largest share of home purchase mortgage applications since 2016, accounting for 51 percent of home-purchase mortgage applications”
Sorry, I remembered the 67% figure. You are right, it wasn’t ALL mortgages.
It’s first time mortgages and 37% of all repeat purchases.
Sizzle.
This fits in exactly with what WP posted. First time buyers in November made up 25% of sales. Hooray! These were mostly Millennials. I wonder how many are GenZ? They are making up 3%, or so, of all mortgages now. They would be first time buyers too.
Thanks for confirming what I have been saying for FOREVER JohnnyU. Millennials are driving this market and will be doing so for years to come.
You all are trying to fight against demographics and data. You cannot.
And where do Millennials still want to be? The cities. What are the hottest housing markets now? The cities.
You can see it in rentals and home purchases now. Everywhere.
The Baby Boomers, however, are certainly driving the markets in the hot retirement areas like sonies Reno, all of Florida and single family home developments in Texas.
Heck, there’s a developer which is building a 100,000 home master plan community 30 miles outside of Phoenix. Who’s that being built for? Mostly the Boomers.