There has been lots of talk both locally and nationally that rents are about to take off.
Renters beware: Double-digit rent hikes may be coming soon amid rental vacancy rates that have dipped below the 10 percent mark, where they had been lodged for most of the past three years.
“Young people are starting to get rid of their roommates and move out of their parent’s basements,” said Peggy Alford, president of Rent.com, predicting the vacancy rate will hover at a mere 5 percent by 2012. With fewer units on the market, prices will explode.
Rent hikes have averaged less than 1 percent a year during the past decade, according to Commerce Department statistics, adjusted for inflation. Now, Alford expects rents to spike 7 percent or so in each of the next two years — to a national average that will top $800 per month.
In the hottest rental markets, the increases will likely top the 10 percent mark annually for the next couple of years. In San Diego, Alford anticipates rents will rise more than 31 percent by 2015. In Seattle rents will climb 29 percent over that period; and in Boston, they may jump between 25 percent and 30 percent.
Locally, construction continues on new rental towers and failed condo buildings are also being converted to rental buildings with the latest apparently being Lexington Park at 2138 S. Indiana in the South Loop.
From Crain’s:
Completed in fall 2009, the building has sat nearly empty for more than 18 months, as the South Loop condo market has shown few signs that it’s pulling out of its depressed state.
About 55% of Lexington Park’s 333 units had been under contract as of early 2010, but those deals were canceled, the spokesman says. Buyers have closed on just three condos in a seven-story portion of the project that has 36 loft units, according to property records.
Meanwhile, the downtown rental market is booming, one reason a switch to rental makes sense. Rents at downtown luxury apartments rose 7.2% last year and could rise another 7% to 8% this year, according to Chicago-based Appraisal Research Counselors.
Still, ST Residential will face tough competition from other former condo projects that recently went rental, such as Terrazio, 1935 S. Wabash Ave., and the 30-story Astoria Tower at Ninth and State streets, says Aaron Galvin, broker/owner of apartment marketing service Luxury Living Chicago.
They’ll also be “competing with the shadow condo market,” says Mr. Galvin, who isn’t involved in Lexington Park. “You still have a lot of individuals renting out their units and they can undercut (Lexington Park’s prices).”
One bedrooms are expected to rent in the range of $1300 to $1600 a month with 2-bedrooms between $1700 and $2100. By comparison, the 1 bedrooms in Terrazio are renting for $1500.
Are downtown rents going to skyrocket in 2011 and 2012?
South Loop condo tower converting to apartments [Crain’s Chicago Business, Andrew Schroedter, March 15, 2011]
Rents could jump double digits as vacancies drop [CNN, March 15, 2011]
