Market Conditions: Rents Falling Sharply in Downtown Chicago
As we’ve been chattering about lately, there is simply too much supply of units (both rental and condo) in the downtown area.
Not surprisingly, rents have fallen the most in 7 years.
From Crain’s:
Effective rents at Class A downtown buildings fell to $2.11 a square foot in the fourth quarter, down 6.2% from $2.25 in the year-earlier period, according to Appraisal Research Counselors, a Chicago-based real estate consulting firm. It was the first annual drop since 2003 and the biggest decline since 2001, when effective rents slid 7.7%.
“I think this next year is going to be really tough,” says Appraisal Research Vice-president Ron DeVries. “We’ve just been having lots of ugly conversations lately.”
Effective rents fell 6.6% between the third and fourth quarters, the biggest quarterly drop since Appraisal Research began surveying the downtown market in 1997. The fourth quarter is typically slow for most landlords, with rent declines even in strong markets.
According to Appraisal Research, occupancy is down to 90.6%, its lowest in 6 years. Still, Appraisal doesn’t see rents going as low as they did in 2001, the last bottom in the rental market, despite the huge influx of apartments and condo units coming on the market in 2009.
Still, an oversupply of apartments is the larger problem for landlords right now, especially in the South Loop. Developers completed three buildings comprising 1,016 apartments in the South Loop last year, according to Appraisal Research.
And condo rentals are becoming a bigger competitive threat, with developers adding nearly 3,200 condos to the South Loop in 2008 and 2009. Unwilling or unable to sell their units in a lousy market, many condo owners are renting them out for the time being.
Some are offering good deals on rent, one reason new apartment high-rises in the South Loop have been slow to fill up. A 278-unit building at 1401 S. State St. developed by Chicago-based Equity Residential and Dallas-based Lincoln Property Co. is only 60% leased 10 months after opening, according to Appraisal Research. Under normal market conditions, a similar building would be at least 90% full at this point.
The new South Loop projects “have hit the market at the worst time,” Mr. DeVries says. “If you want to live in the South Loop, you have lots of options. That has really slowed down the leasing.”
Downtown apartment rent falls by most in 7 years [Crain’s Chicago Business, Alby Gallun, Feb 23, 2009
The only thing that will create a bottom in prices is stabilized rental value. Prices haven’t even fallen to that point yet.
The acceleration of declining rents and increasing vacancies mean the bottom is further off and the downward spiral continues.
The correction is a long way from over.
IMO, South Loop rent prices are no different than condo prices in Chicago. The only reason these prices are coming crashing down is because they were so overpriced to begin with. The new appt building 2 blocks east of the Vetro, 900 S Clark, is in the middle of nowhere and those jokers want $1650 for a 1 BD and 1900 for 1 BD + den.
Has anyone seen the Case-Shiller numbers this morning? Down 18.5% yoy. Holy crap!
Yeah and the government is offering me 8k to jump in front of the train that is home loanership these days. LOL!
Chicagoland CS number: 137.16. Chicagoland is down 18.6% from the peak and 14.3% YoY.
Is there an opportunity for rents to be negotiable when you are dealing with a management company?
Bob, these numbers mean only 1 thing: We must be at or near the bottom.
“#Bob on February 24th, 2009 at 8:08 am
Yeah and the government is offering me 8k to jump in front of the train that is home loanership these days. LOL!
Chicagoland CS number: 137.16. Chicagoland is down 18.6% from the peak and 14.3% YoY.”
MMK- I have found that it’s easier to negotiate with a condo owner. My landlord agreed to shave $150 off my rent provided I signed a 2 year lease. I guess it depends on how well the management company is doing. Right now you shouldn’t pay full price for anything anyway.
That’s what the cherleaders said when the DOW was at 8k. “Oh, this must be the bottom.” Now we sit at 7k, and it looks like we’ll punch through it soon enough.
I think real estate has more downward movement yet.
I am just going to buy a boat and live on it.
We’re back to December 2003 levels. http://blog.lucidrealty.com/chicago_real_estate_statistics/
I read you can get good deals on them in FL these days. Lots of boat repo’s out there by banks. Might not be a bad idea.
“I am just going to buy a boat and live on it.”
my SL rental is offering “upto 4 months free” and 500 bucks referral fee, does it seem like they might be hurting?
Here are the YOY declines in the CS Index for Chicagoland since Elmo killed Kermit:
May 2007 -0.6%
June 2007 -0.7%
July 2007 -0.9%
August 2007 -1.3%
September 2007 -2.5%
October 2007 -3.2%
November 2007 -3.9%
December 2007 -4.5%
January 2008 -6.6%
February 2008 -8.5%
March 2008 -10.0%
April 2008 -9.3%
May 2008 -9.5%
June 2008 -9.5%
July 2008 -10.0%
August 2008 -9.8%
September 2008 -10.1%
October 2008 -10.8%
November 2008 -12.5%
December 2008 -14.3%
I have no idea what this means.
I read you can get good deals on them in FL these days. Lots of boat repo’s out there by banks. Might not be a bad idea.
Yeah but Marina fees go up way more than rent every year! And you likely have to live on the calumet river in the winter which doesn’t sound like a great idea.
I live near 1401 S. State and I’d be surprised if it was even 60% occupied. My wife and I joke that people that live there are just extrememly busy and never at home because it’s not unusual to see a light in only one unit on an entire floor.
Same thing for the Amli building next to Target.
Anybody know anything about the Dwight Lofts on Clark?
Hopefully this continues and I can get a significant reduction on my rent when my lease comes due.
“But what if you lose your job!” – They’re firing everyone that makes more money than I do. Which, thankfully is just about everyone.
I currently live in Museum Park Tower 4 for which I pay $1650.00. It is a 1/1 west facing with hardwood, ss, granite, w/d, storage locker, 25th fl and overall nice unit.
I would say it is about 850-900 square feet. Parking, heat and internet are included in the rental price. My lease is coming up for renewal and I was wondering if my current price is right or if I should try to get a lower rent? Thanks for you help
Mike.
MMK:
You won’t be able to negotiate with a property management company due to fair housing laws. be sure to ask about moving in sooner/later sometimes these options may give you a cheaper rate.
As Lauren said, You may be able to get a deal with a private owner though.
Southside:
Dwight lofts seems to be a dorm for the students in the area.. it’s website lists its rates per occupant.
http://www.dwightlofts.com/
mike:
your rate seems good for the area, but i would recommend checking out “1130 S. Michigan” and “Sky 55” they both are very close in location, but you might be able to find something for 200+/- with a nice lake view.
Cite where a “fair housing law” you can not negotiate. Everything is negotiable. Rents are fair game to negotiate especially in this market.
Go here and take the template and augment it w/ your details and the Chicago market and send it off to the management companies.
http://blogs.wsj.com/wallet/2009/02/09/how-to-reduce-your-rent/
freemarket:
In regards to negotiations you can not negotiate when you first rent an apartment from a property management company,
it falls under:
“WHAT IS PROHIBITED?”
“Set different terms, conditions or privileges for sale or rental of a dwelling” as it could be seen as discrimination.
cited:
http://www.hud.gov/offices/fheo/FHLaws/yourrights.cfm
& 6 years as a leasing agent.
As far as negotiating a lease renewal that is possible, Because each “unit” is already occupied, not available on the market and will differ in amenities… ie. view, floor, etc…
I thought the question implied a new rental.
I doubt any landlord has ever faced legal trouble for negotiating a rental rate with a tenant. But in any case, I’ve noticed that when the Chicago rental market softens up you don’t typically see price reductions per se but there are loads of incentives like several months free on a 12 month lease, free parking, no deposit, moving expenses paid, etc. So basically a back-door decrease. It’s probably easier to negotiate things like this than a lower monthly rate anyway.