Market Conditions: Has Chicago’s Downtown Apartment Market Bottomed?
In 2020, Chicago’s downtown was hit by both the coronavirus pandemic and the George Floyd looting and protests.
Not only did tourists stay away, but renters fled downtown apartment towers resulting in the lowest occupancy rate in decades.
Landlords were forced to slash rents and give out deep discounts, including 2 to 4 months free rent, along with other perks like cleaning services and free parking, in order to get new tenants.
But according to the latest update from Crain’s, the downtown apartment market showed a surprising turnaround by Q4 of 2020.
“The bleeding has stopped,” said Ron DeVries, senior managing director in the Chicago office of Integra, a real estate appraisal and consulting firm. “The patient has moved to the recovery room, too.”
As a result, one key measure of demand, absorption—or the change in the number of occupied apartments—totaled 548 units in the fourth quarter, reversing two quarters of declines, according to Integra.
DeVries had earlier forecast absorption of -1,300 units for all of 2020. With the turnaround in the fourth quarter, absorption totaled -238 for the year. Though it was the first year of negative absorption since 2005, DeVries expected it to be much worse.
“That’s big,” he said. “What it says is that people are prepared to move back downtown, and they’re starting to make those decisions to do it.”
According to Integra, occupancy fell to the lowest since the 1990s in Q4, to 86.5%, down from 87.1% in Q3.
It was 93.3% in the fourth quarter of 2019, before the pandemic hit.
Class A rents also remain depressed, down 18.5% from the fourth quarter of 2019, at $2.55.
But DeVries expects a strong spring leasing season to push up the occupancy rate. Leasing this winter, normally a slow period, has been surprisingly strong. Apartment hunters can still find plenty of deals, but they might not last.
“I would think that by mid-summer, we should be well above 90 percent,” he said. “Everyone we talked to says their leasing activity this winter has been off the charts compared to prior years.”
Was the fourth quarter of 2020 the bottom of the dramatic pandemic apartment re-set?
And if the rental market is showing improvement, will that extend to the downtown condo market as well?
Here’s why those downtown apartment deals might not last [Crain’s Chicago Business, by Alby Gallun, February 17, 2021]
“the George Floyd looting”
Thanks Sabrina for keeping it real. Good descriptor. Fact.
“Was the fourth quarter of 2020 the bottom of the dramatic pandemic apartment re-set?”
Probably at or very near the bottom. The issue now is how quickly can you claw back to the 93% AND remove the multiple months of free rent and other incentives.
Occupancy probably improves a couple percent throughout the year and instead of 3 – 4 months of rent free plus free parking, waived move-in fee and, a $1,000 giftcard you get 2 – 3 months free, free parking, waived move-in fee, and a $500 giftcard.
At the end of the day, the report still shows slightly negative absorption for the year. That’s what matters on top of a steep drop in occupancy.
“But according to the latest update from Crain’s, the downtown apartment market showed a surprising turnaround by Q4 of 2020.”
Turnaround? occupancy fell and absorption was negative. That’s not a turnaround but maybe/probably a bottom.
“And if the rental market is showing improvement, will that extend to the downtown condo market as well?”
In a couple years if/when occupancy climbs back to the low 90’s and the incentives dry up. Too much uncertainty if you are a buyer. That knife is still falling.
Is there any update as to anticipated # of evictions coming out of the moratorium?
“Is there any update as to anticipated # of evictions coming out of the moratorium?”
The poor are not allowed to rent Class A downtown apartments with nice things.
Also, it looks most “blue” states have extended to June 30 alongside where the FEDS put it. The other issue will be is if/when (and a big if in some states with the SJ warriors) eviction court opens up there is going to be such a backlog it will probably take another year or more to get through.
Also, over the summer Sherriff Dart put out a report saying up to 250,000 households face eviction. 250K seems a little high if you assume 2 people per household and a population of just over 5 million in a county with a 57% homeownership rate per the census that would mean ~2.85MM rent and 500K people face eviction or conservatively 17.5% of all renters in the county.
My guess is the numbers are a little inflated but would it really surprise you if ~10% of all renters in the county are behind on rent?
https://chicago.suntimes.com/politics/2020/8/19/21376465/eviction-moratorium-illinois-cook-county-sheriff-tom-dart-judge-timothy-evans-jb-pritzker
“assume 2 people per household and a population of just over 5 million in a county with a 57% homeownership rate per the census that would mean ~2.85MM rent”
??
Cook County has ~950k rental units, out of ~2.2m total housing units. Real rental number is probably a little higher, based on “owner occupied” properties that are actually for rent.
So, 250k facing eviction is more like 26% of renters. If you take out the ~80k in public housing or with section 8 vouchers, it’s close to 30%.
So, he was *probably* talking about “people” and assuming a not-really-accurate 2.5/household, and really meant 100k households, and thus more like 10%.
“So, he was *probably* talking about “people” and assuming a not-really-accurate 2.5/household, and really meant 100k households, and thus more like 10%.”
At even 2% in the Green Zone, thats not a minor blip
“Also, over the summer Sherriff Dart put out a report saying up to 250,000 households face eviction.”
Over the summer?
That might as well have been 2019.
“That might as well have been 2019.”
Are you suggesting Covid was causing economic hardship in Chicago in 2019? Take the tin-foil hat off.
“Also, over the summer Sherriff Dart put out a report saying up to 250,000 households face eviction.”
It really makes sense for Biden to bring in millions more penniless and unemployed illegal aliens right about now. I guess Bidenists can print another $1.9 trillion.
^says the closeted, self-loathing, homosexual, white-supremacist…
“I guess Bidenists can print another $1.9 trillion.”
—————————
Not so bad if they reverse the $1.5 trillion UNFUNDED tax cuts the Repukes passed in 2017.
Hard to believe, but the Democrats have been the party of fiscal prudence since 1980 — 40 years now.
We need not mention that the Laffer Curve has NEVER lived up to its promise (or premise for that matter).
johnc, repubs only care about deficits when a democrat is in charge!
johnc: It was loathsome that under GWB the Repubs let the Israel-first Neocons con America into that $4 trillion Iraq War debacle. Honest people started the Tea Party, so they did in fact care about deficits.
That movement, about the deficits, was co-opted on the Right by RINOs and career politicians and demonized on the Left by anti-white racists filled with lunatic hate of middle class whites. So a movement about pure mathematics and not politics was snuffed out. Where were you on it? My guess is irrational hate. Math is not the strong point of Leftists and anti-white lunatics.
” the Laffer Curve has NEVER lived up to its promise”
Well, with runaway Warfare and Welfare spending it never had a chance.
“ We need not mention that the Laffer Curve has NEVER lived up to its promise (or premise for that matter).”
It’s not the curves fault that folks on both sides of the isle are idiots and misrepresent it
“Not so bad if they reverse the $1.5 trillion UNFUNDED tax cuts the Repukes passed in 2017.”
They capped the SALT deductions which is worth $673Bn. Now Dems want to remove in the $1.9Tn stimulus.
Further, it was passed under reconciliation in which senate rules states proposals need to be deficit neutral in order to pass simple majority and avoid the filibuster. Same thing as the Dems are doing now for the $1.9Tn. This is why minimum wage is being left out (priorities of the Dems repeal SALT tax don’t raise minimum wage quite telling). The Senate Parliamentarian is the decider on what adds/doesn’t add to the deficit.
Also, Treasury revenue increased in 2018, 2019, and 2020 compared to the prior year
Your $1.7Tn number is also over 10 years even though TCJA sunsets for individuals in 2025 unless extended (8 years from passage).
Your statement earns 4 Pinocchio’s. Partisans going to partisan.
“Hard to believe, but the Democrats have been the party of fiscal prudence since 1980 — 40 years now.”
The fact that you believe either party cares about the debt is laughable. Outside of Clinton (lucked into it) and the Tea Party movement (maybe 2 years of minor success) no one in Washington has cared about the debt over the past 40 years. Partisans going to partisan.
“Honest people started the Tea Party, so they did in fact care about deficits.
…
That movement, about the deficits, was co-opted on the Right by RINOs and career politicians …”
———————————
Not even a half-assed attempt at revising history. Reagan kicked deficit spending into high gear, and Dick Cheney famously said that Reagan taught us “that deficits don’t matter.”
Reagan and Cheney are RINOs. Who knew?!
Serious question: If progressivism is the way to go, why is everyone leaving Illinois, California and New York for Republican states?
Personally I’ll be packing up and selling my condo soon to avoid the inevitable crash in Illinois housing prices due to progressive politics.
“Serious question: If progressivism is the way to go, why is everyone leaving Illinois, California and New York for Republican states?”
Everyone?
“Personally I’ll be packing up and selling my condo soon to avoid the inevitable crash in Illinois housing prices due to progressive politics.”
Marty: Why wouldn’t you sell, rent, wait for the crash and then buy when it’s cheap?
That would make more sense.
If you know an asset class is going to “crash” it sounds like those with cash on the side will get a lot of deals.
“ Marty: Why wouldn’t you sell, rent, wait for the crash and then buy when it’s cheap?
That would make more sense.
If you know an asset class is going to “crash” it sounds like those with cash on the side will get a lot of deals.”
Funny coming from the shill that claims how HAWT ™ the market is, yet isn’t buying properties.
“If progressivism is the way to go, why is everyone leaving Illinois, California and New York for Republican states?”
If you look at the data people aren’t leaving California so much as people are leaving San Fran/LA (Oakland too I assume) for either the suburbs or out of State especially over the past year. California’s population has grown every year this past decade it’s decelerating however.
New York State population increased over the past 10 years albeit slower than prior decades. People left NYC given Covid and to avoid the City Income Tax. If you live in NYC or NY State <180 days you can avoid city and State income taxes. Most left to avoid City tax. Alot of people left to NY suburbs plus New Jersey and Connecticut over the past year. The rent increases happening in Newark are double digits and the housing prices are through the roof in CT and NY burbs.
Illinois is losing population downstate. Cook County is flat to slightly down and the suburbs are flat to slightly up. Downstate is an economic malaise unless you live in the flagship college towns of Bloomington Normal/Champaign whose economy isn't solely dependent on the University.
A small blip in the timeline, all these areas losing population will see it increase again in 7 years. We U.S. humans are very reactionary, but always go back to what we did before. Chicago area suburban flight back in the days had other biased factors that kept it going for as long as it was.
You will see as the 2000’s till 2019 saw the huge influx to urban areas. This fleeing cycle will be shorter and will come back stronger due to the abundance of the recently bankrolled apartment construction that has started or is contractually obligated to start and complete. Incentives will be offered and price will drop in the next few years to to the glut of rental units. I see it bringing out the next wave of 25 year olds out of their parents house.
Lather Rinse Repeat