Market Conditions: Luxury Rental Rates Hit New Record in Q1 But 5,000+ Apartments Still To Come
Crain’s is reporting that rental rates on Class A buildings in downtown Chicago hit a new record high of $2.63 a square foot in the first quarter of this year.
Class A buildings are the luxury apartment towers like The Streeter.
For example, the rent on a 700-square foot 1-bedroom apartment would be $1841 a month in a Class A building.
But as many renters get priced out of that price range, they are trading down to Class B buildings. That has meant greater demand at that level, which has also pushed those prices up to a record of $2.32 a square foot.
That same 700 square foot apartment in a Class B building would rent for $1624 a month.
Occupancy is high in the Class A buildings. It ran at 95.3% in the first quarter.
Yet supply will soon catch up with demand and could, some fear, even exceed it. A construction wave will add seven new high-rises totaling 2,895 apartments to the downtown market this year, with another 2,330 units to be completed in 2014, according to Appraisal Research.
Most observers agree that the new supply will make it harder for landlords to hike rents. In a best-case scenario, rent growth will only taper off; in the worst, rents will fall as competition for tenants intensifies.
“Right now is a great time to be leasing up a building,” said Appraisal Research Vice President Ron DeVries. “The question is what happens August, September, when we start to hit the fall.”
But Mr. DeVries doesn’t expect trouble, predicting rents will rise about 4 percent to 5 percent in the 12 months through March 31.
Yet according to Appraisal Research, the market has only absorbed an average of 1540 units a year over the last 3 years. Nearly double that is expected to be completed this year.
There are also a significant number of projects in the works, although many may not obtain financing. And some will be in the neighborhoods like Lakeview or Bucktown.
The hot market has attracted a mob of other developers trying to get in on the fun. Beyond projects already under way, 26 developments comprising 6,292 apartments are in the works in greater downtown, according to a partial list compiled by Appraisal Research. Of course, the number of completed projects will be much lower because many developers will never secure financing to break ground.
The list of expected buildings includes the Residences at Wolf Point, a 507-unit building on Wolf Point being developed by a joint venture of Hines Interests L.P., the Kennedy family and Magellan Development Group LLC. The venture already has lined up financing for the $153-million tower from the AFL-CIO Building Investment Trust and Bank of America Corp., said Greg Van Schaack, Hines senior vice president. He expects to break ground sometime this summer.
Is there any danger that the apartment market will be overbuilt?
And if they do so, can’t they just convert buildings into condos, where demand seems to be strengthening rather quickly?
Downtown apartment rents hit new high, but supply surge to come [Crain’s Chicago Business, Alby Gallun, May 20, 2013]
If apartment rents cool down, then one or two of the buildings will switch to condos because there is a lack of supply of new condo units. None of them have made the switch yet because rents are at their high now.
Rent now or forever be priced out of the market!
“Rent now or forever be priced out of the market!”
I hope my tenants are thinking the same thing.
“Is there any danger that the apartment market will be overbuilt?”
nope, only because there are literally zero condo buildings being built right now.
“For example, the rent on a 700-square foot 1-bedroom apartment would be $1841 a month in a Class A building.”
At some point the kiddos will decide that living in Pilsen for $800 bucks a month is far better option. Of course there will always be the children of the wealthy who would ‘cringe’ at living in a real neighborhood among the unwashed masses, but the influx of grads aren’t all the children of asian doctors and engineers.
Where do the kiddos live these days anyways? They’re not in Niles! hahahhah. Logan seems to attract an older crowd and wrigleyville is pretty pricey too. I don’t think wicker is even all that hot any more. and Pilsen? Do people still live there? I know that west town in pretty hot, but everyone I seem to know there is well into their 30s.
Interesting article on some things we’ve been discussing recently:
http://www.chicagotribune.com/news/local/breaking/chi-more-poor-in-suburbs-20130520,0,357686.story
The number of poor in the burbs has doubled in Chicago from 2000. NYC and LA were 28 and 17 respectively.
Interesting yoss, though not surprising. Many CHA sites were dismantled in the 2000s and most were not replaced by anywhere near the number of public housing units that were there previously.
It’s still Lincoln Park and Wrigleyville. The article focused mainly on top tier properties (A&B properties). LP and Lakeview still has plenty of “new grad’ friendly apartments you can rent for a couple of hundred a month. Think of all the 2/1’s with laundry in the basement, window ac etc.
A lot of poorer people prefer the suburbs because it’s safer, less congested and has better schools. It’s all relative though, Cal City schools are better than Roseland, if you’ve moving from public housing in the city to a section 8 rental in the ‘burbs.
” Vlajos (May 21, 2013, 9:52 am)
Interesting yoss, though not surprising. Many CHA sites were dismantled in the 2000s and most were not replaced by anywhere near the number of public housing units that were there previously.”
“For example, the rent on a 700-square foot 1-bedroom apartment would be $1841 a month in a Class A building.”
That’s cheap rent, at 1225 north well that 700 sq. ft. apartment will cost you $2135 a month, and they are planning to rent increase in the near future.
“It’s still Lincoln Park and Wrigleyville. ”
Arguably it’s been a while since I’ve gone out for a night at the bars in either of these areas although I occasionally get invited by one particular friend to some to college themed bar off Sheffield. Then we ended up at some tiki themed place across the street until 2 am, what a ridiculous waste of time that night. It’s too tough to get back to the ‘burbs without driving these days. Although I did find myself at a private party in a RN restaurant a few weeks ago. That’s easy – $6 cab to/from the C&NW station and trains every hour until 12:30; and it’s an easy ‘safe’ walk home from there. No way would I ever take teh el at night anymore, I always hated that.
Gang members live in Pilsen and a few artists. I live on the border of Pilsen and I wouldn’t live south of the tracks even if the place was free.
“That’s cheap rent, at 1225 north well that 700 sq. ft. apartment will cost you $2135 a month, and they are planning to rent increase in the near future.”
That’s becuase Old Town is a better place to live then downtown 😉
It’s close to the loop for work, close to River North and west loop restaurants, close to the Zoo, close to the beach/parks and close to mag mile / north clybourn for shopping. It’s everying you really need.
“Is there any danger that the apartment market will be overbuilt?”
i’ll assume this is a rhetorical question.
“That’s cheap rent, at 1225 north well that 700 sq. ft. apartment will cost you $2135 a month, and they are planning to rent increase in the near future.”
That’s becuase Old Town is a better place to live then downtown
I agree but I believe they are getting similar rents at K2, which is a really crappy location.
El late night is horrible. Too many loud idiots acting like they’d never had a drink. It’s one time ill shell out coin for a taxi without a second thought.
My buddy rented his 1 bed loft near the main post office for 1700, I was shocked.
I was in pilsen recently eating at nueva leon… neighborhood is WAY better than it used to be.
Its really not that bad and at least on 18th street seemed very safe
Pilsen off halsted hasn’t been ‘bad’ in years but it’s just so FAR away from the rest of the under-40 city dwelling college graduates in the city, sort of on the fringe. I had friends that lived there and it was always a driving affair, give or take 30+ minutes or more depending on traffic through the loop. Saturday afternoon ? Fudgetaboutit. Saturday night at 1:00? Sure as long as there was a sober driver.
Nightwood in Pilsen is one of my favorite restaurants. Really surprised Pilsen hasn’t developed more.
“we ended up at some tiki themed place across the street until 2 am, what a ridiculous waste of time that night.”
That’s Trader Todds. Where else are you going to hear someone doing Brittany Spears karaoke….”i’m not that innocent…”? LOL. Actually that place used to be in the Gold Coast, believe it or not.
Chicago is just moving to extremes. More poor as our nation becomes demographically and IQ-wise like Brazil-North. More extremes in societal mores, for instance with increased acceptance of homosexuality and arch-liberalism leads to more people that won’t be having kids or even getting married, this all leads to an increased marginal supply of people who live in 700 sq. ft. downtown high-rises (willing to pay the increased rent psf). In the past, there would be marginally less people living these lifestyles. The first time I really noticed this stuff, was that show Sex in the City, where they had that over 40-character (Chris Noth) who was still living like an adolescent in the big city lifestyle. So, that character was based on evolving reality in America, and then life imitates the art, and the increased acceptance of people in their 40’s living in apartments, not giving up the adolescent lifestyle. And back to the poor issue, it’s amazing that soon, it will be 8 years after Obama’s Grant Park speech, where all the liberal females and other assorted liberals were “Crying” and in tears over this guy. He’s not helped the poverty issue one iota, it’s gotten worse and it will be worse in 2016 after our next round of financial bubbles correct.
“Really surprised Pilsen hasn’t developed more.”
No CTA train.
yoss’ article: “More people in the suburbs slipped into poverty as manufacturing jobs disappeared, the authors found.”
This is the result of the Left-Right status quo’s “free traders”. Clinton, Gore, the Bushes, etc. are into this game, and Gore is now more wealthy than Romney. It’s only the Far Left and Right that see what “free trade” has done to America’s middle class. Ever notice that the manual labor in Chicago is majority Mexican or Polish? Where are the blacks? They don’t work. Those suburbs mentioned Lansing, S. Holland, etc that are increasing in poverty as majority black. So, you have the arch liberals still advocating for black independence from America’s social mores and culture, and you leave them to their own devices and they revert back to an African state: feral. What you get from archliberalism gone mad, is a guy like Gosnell taking care of the business his poor community, that doesn’t work, bring to him. It’s all very far removed from the perpetual adolescent Candid Candace crowd that lives in $2.50 psf one-bedrooms and pays full retail Mich Ave prices for clothes etc. yet they are ultimately to blame for the conditions, economically and socially.
Generally speaking – Wrigley and Lincoln Park are more right out off college types. Three people sharing a 3br for 6 or 700 each. Old Town and South Loop are more mid to late 20s, usually one roomate. River North is late twenties to 30s. Wicker Park/West Town is more of the artsy/hip types of all ages.
“Homedelete: At some point the kiddos will decide that living in Pilsen for $800 bucks a month is far better option. Of course there will always be the children of the wealthy who would ‘cringe’ at living in a real neighborhood among the unwashed masses, but the influx of grads aren’t all the children of asian doctors and engineers.”
Completely agree, and this is why I have a hard time imagining how they’re going to rent out all these new luxury rentals. I lived in a big crap-hole artist loft off Lake st. and the Kennedy expressway for 2 years (great location actually) for $400/month with 5 roommates. Saved up a ton of money, paid off all my debt and saved up for a down payment. I would’ve kept staying there except one of my asshole roommate’s pregnant gf moved in and made everything too awkward (yes, that shit still happens). I grew up in a middle class family surrounded by the “granite and stainless steel” lifestyle but never, EVER considered paying more than $1000/month for a studio/one-bedroom anywhere in the city that would offer similar perks.
If you choose to live with roommates, you can get still get great deals in great locations. It all depends on what you’re willing to sacrifice. Those in my income bracket choosing to sacrifice less now will be hindered later on, and I think about how that will affect demand for not only luxury rentals (especially with the wealth gap widening further and the declining middle class) but also demand for condo/housing purchasing.
“It’s still Lincoln Park and Wrigleyville.”
Rents in Museum Park and other nice buildings in SL is over $1700 for 1BR too.
I’m far less surprised that Downtown Class A apt rent > $2.63 psf than Presidential Towers is @ 98% occupancy @ $2.32 psf. PT is almost 40 years old – 2350 units w/ lower ceilings, crummier condition, no in unit laundry, lesser amenities like work out facilities etc. That speaks volumes about depth of demand for well located apartments.
Imo if new apartment construction results in excess supply vs demand it will likely widen the spread between Class A and Class B rents rather than severely impact Class A rents.
“Homedelete: At some point the kiddos will decide that living in Pilsen for $800 bucks a month is far better option.”
For the same reason we don’t compare buying in LP/RN to buying in Pilsen I don’t think the renters are comparing the two either. The nice areas will continue to get nicer and accumulate mass while the peripheral areas will gentrify slowly. While West Town / Fulton is close to RN and Logan Square close to Bucktown / WP. Pilsen is close to…Bridgeport? All the luxury rentals are being built in LP/RN but not in the peripheral areas. I think there are even some rentals going up in Bucktown / WP.
I think people staying single longer / having fewer kids / less stability in their job / witnessing the volatility of the housing market means the baseline rental demand is higher going forward. People are willing to pay a premium to have the flexibility to move when they want and not have to take on the risk of selling a home.
Pilsen is very close to downtown, University Village (including UIC and 3 hospital employment centers) and S Loop. I believe Pilsen will become mostly gentrified over next 5-10 years, faster if gas prices spike. Imo ongoing demographic shift will continue such that lower income residents will mostly be replaced by middle class & student residents.
‘… $400/month with 5 roommates. Saved up a ton of money, paid off all my debt and saved up for a down payment’
This is why Elliot, you’ll do just fine in the future, just fine. Even if you weren’t the smartest guy in the room, you’re smarter than the vast majority of fools that will be/are your competition in the job and housing market, and that counts for a LOT in one’s future successes. Sure there’s always going to be that one trick pony that in spite of their stupidity inherits wealth, wins a lawsuit, finds dumb luck, or marries the bosses daughter, but by and large people’s insane choices haunt them the rest of their lives – always has, always will. If I took a ‘where are they now’ inventory of all of my friends and colleagues, I’d say 85% of their future, or rather lack of, was of their own making. “So your QVC jewelry collection didn’t quite pay-off like you thought it would?” “So family member, 4500 sq ft in Naperville is nice for you, but you kinda forgot about the crushing property taxes/utilities/upkeep/multiple cars it requires on your salary?” … which has now turned into “you want me to lend you how much?” Bush, Obama, Mexico, Sex in the City… those failed excuses only go so far.
“Southbound (May 21, 2013, 12:25 pm)
Pilsen is very close to downtown, University Village (including UIC and 3 hospital employment centers) and S Loop. I believe Pilsen will become mostly gentrified over next 5-10 years, faster if gas prices spike. Imo ongoing demographic shift will continue such that lower income residents will mostly be replaced by middle class & student residents.”
Hasn’t most of this (being close to downtown and near hospitals) been true for years? Is UV really that nice? Isn’t UV itself still gentrifying? South loop is already cheaper than RN / LP to rent and buy so Pilsen will really be eating into that pool of renters. Of all the potential places to gentrify I would think Pilsen would be one of the last. I don’t know Pilsen that well – I’ve been there once to Nightwood which according to Google maps is on the border of Pilsen anyway. But I’ve been to Ukrainian Village / Fulton / Logan Sqr many times to go out.
“Hasn’t most of this (being close to downtown and near hospitals) been true for years? Is UV really that nice? Isn’t UV itself still gentrifying? South loop is already cheaper than RN / LP to rent and buy so Pilsen will really be eating into that pool of renters. Of all the potential places to gentrify I would think Pilsen would be one of the last. I don’t know Pilsen that well – I’ve been there once to Nightwood which according to Google maps is on the border of Pilsen anyway. But I’ve been to Ukrainian Village / Fulton / Logan Sqr many times to go out.”
Yes but imo it took UV gentrifying to anchor Pilsen (which has been gentrifying for 20+ years). Yes UV is gentrified except remaining public housing portion. If you drove the streets from Halsted to nearly Ashland from 16th to 22nd you would see much of the housing stock has been rehabbed in recent past. Like West Town/Uk Village/ Logan Sq public housing & other remnants of the past will remain but they become diluted as was the case in Lincoln Park and other gentrified neighborhoods over past 40 years.
“‘… $400/month with 5 roommates. Saved up a ton of money, paid off all my debt and saved up for a down payment’”
That’s a bit of the extreme. The difference between living alone and having a roommate is huge, but the value of having more than one roommate goes down past one roommate. If you had two or three roommate instead of 5, would your rent be $600? Does $2,400 a year make all that much of a difference?
I lived for many years with a roommate (aka my wife) in a location slightly outside of ‘hip’ Old Irving Park and my portion of the rent was $425.00; and I lived there for nearly a decade. I lived with a bunch of other dudes in college and I’d never go back to doing that again. I’d gladly pay a few extra hundred bucks a month to have one roommate rather than 3 or 4.
I live in UV and think Pilsen is getting worse. I am noticing more graffiti between in the viaducts between UV and Pilsen. There are also occasional shootings near the subsidized housing. UV is generally safe and lots of professionals live there. I worry it’s going to go down the tubes though.
The alderman is also holding off gentrification in Pilsen by insisting on giving poor people free housing while charging everyone else market rates. I remember they were going to build more condos past the 16th street viaduct, but the alderman derailed it by wanting set-asides for the poor. Now, we’re left with two huge empty lots. Luckily, the viaduct is good at blocking them.
“I live in UV and think Pilsen is getting worse. I am noticing more graffiti between in the viaducts between UV and Pilsen”
graffiti is getting worse everywhere in Chicago.
“I am noticing more graffiti between in the viaducts between UV and Pilsen”
Jenny – I am noticing more graffitti everywhere! It is rampant in the west loop. The old grafitti buster program appears to have less funding or manpower these days.
Jenny; Years after all gangbangers were displaced from the neighborhood around Halsted & Wrightwood (yes it was gang ridden in my lifetime!) they still returned to write graffitti on garages & walls. It looked bad but it didn’t change the new nature of the neighborhood. Shooting presumably tied to drug traffic near public housing in Pilsen & UV are a concern, but mainly to participants in the business.
” they still returned to write graffitti on garages & walls.”
Don’t kid yourself, you know they returned to the ‘hood to do more than that. Keep your shit locked up real good and your security system ‘ON’ at at all times.
School is out and no teenagers have jobs, of course graffiti is trending up in the near term
“School is out ”
WTF? CPS goes for another 5 (!!) weeks this year.
They should make teenagers who post the graffiti work for the graffiti removal service as their punishment.
whatever, I am just guessing… besides the point, they all should be going year round, not like they are going to help around the farm
not to mention they’ll spend the first two months of next year re-teaching the crap they forgot over the summer…
Oilc said
“I agree but I believe they are getting similar rents at K2, which is a really crappy location.”
Have you been to the Fulton River District Area? It is quite possibly the best location in the city. You’re right off 90/94, with quick access to 290 so you can get to the suburbs if you work there. If you work in the loop, it’s a 15-20 minute walk. If you want to go to river north, you’re a ten minute walk from there. Plus everything is new, the area is totally gentrified, and you don’t have to deal with all the tourists, traffic, and bums that plagues the loop and river north.
Mike, yes I have to year district it’s a second tier location. I guess if like hearing metra day and night it’s great! I dread hitting 90/94 at all cost, and being right next to all that car pollution must be fantastic. There are better locations if you want to be close to the lake, walking distance to the loop, or may prefer to live in an actual neighorhood. I know this is my personal opinion and to each his own.
Mike, yes I have to year district it’s a second tier location. I guess if like hearing metra day and night it’s great! I dread hitting 90/94 at all cost, and being right next to all that car pollution must be fantastic. There are better locations if you want to be close to the lake, walking distance to the loop, or may prefer to live in an actual neighorhood. I know this is my personal opinion and to each his own.
“I believe Pilsen will become mostly gentrified over next 5-10 years, faster if gas prices spike.”
Maybe someone else with more info can speak to this- but don’t the Podmajerskys basically own most of what’s around 18th Street and Halsted- all those loft buildings and all of that? And since they do (and rent out all of it)- there’s no way there can be development in that portion of the neighborhood. So it stagnates because there’s no way for it to really gentrify past what it has already done the last 10 years.
K2 has only the one set of train tracks by it, and there are no crossings by it, so the noise is almost non-existent. 90/94 is partially capped in that section of 90/94 so the noise / pollution is low as well. There are incredible views from the area, and the location to the suburbs, airports, west loop, loop, and river north are unrivaled. Is it close to the lake, no, but that doesn’t mean a whole lot to everyone. Finally, the entire area is wealthy and new.
Oooooooh wealthy and new, I’m sold. Thx. Mike
“Finally, the entire area is wealthy and new.”
Didn’t this area start gentrifying about 20 years ago? I know some of the loft buildings were converted in the mid-to-late 1990s. I like the location if you want to walk to work. It’s great for being close to the loop.
Sabrina asked “..don’t the Podmajerskys basically own most of what’s around 18th Street and Halsted- all those loft buildings and all of that? And since they do (and rent out all of it)- there’s no way there can be development in that portion of the neighborhood. So it stagnates because there’s no way for it to really gentrify past what it has already done the last 10 years.” You are correct that Podmajersky’s own a significant % of the buildings on Halsted south of 18th ( 50%?). But in my experience residential gentrification happens before retail changes – recall Halsted & Wrightwood between 1983-93. A small grocer & hardware occupied the corner & restaurants & blues bar operators purchased well located buildings cheaply. Podmajersky’s artist & gallery based redevelopments, which have been ongoing for past 30+ years, assist yuppies to view Pilsen as on the way up (which it’s been for 20+ years). No Pilsen will not stagnate going forward imo – look at the successful restaurants & bars on 18th St. Like all edge neighborhoods gentrification slowed down over past 5+ years but imo central Pilsen will turn predominantly middle class in very near future.
“Have you been to the Fulton River District Area? It is quite possibly the best location in the city. You’re right off 90/94”
I’m enjoying this new shtick/real estate agent persona.
Who are the Podmajersky’s?
Who are the Podmajersky’s?
http://www.podmajersky.com/index.htm
“Didn’t this area start gentrifying about 20 years ago? I know some …loft buildings were converted in the mid-to-late 1990s. I like the location … to walk to work. It’s great for being close to the loop.”
I believe MikeMG’s point is he only sees people who look just like himself on the streets of his neighborhood as opposed to who he would see on the sidewalks of WestTown/ Wicker Pk/ Pilsen etc. While it’s been gentifying since China Club and similar buildings were converted in late 90’s, in ’05 & ’07 Fifield paid a shockingly low price to buy about 8 ac tract of former railroad land either side of DesPlaines, which is now the site of 4 or 5 apt complexes & the Jewel anchored retail. Hey sabrina when I looked up Fifield’s purchase a 2007 Trib article stated “..Meanwhile, there isn’t a rush of new rental buildings in development because barriers to entry are substantial. It can take two years to find a site, secure city approvals and financing and get construction under way. With the rising cost of building materials and labor, condominium high-rises can cost around $400 a square foot to develop and rentals about $300, much more than the approximately $200 per square foot to purchase some existing multifamily properties, Andren said…”
Thanks oilc, looks like they’ve been “working” on this a long time.