Crain’s is reporting that due to too many people wanting to rent, and not enough willing to buy condos or other property, that there won’t be enough apartments to house all those who want to rent one downtown.
The result?
Downtown apartment rents are expected to jump anywhere from 8% to 10% in 2011.
This despite a nearly 10% unemployment rate.
“I think we are poised for some rent spikes next year because demand is so high,” says Ron DeVries, vice-president at Appraisal Research Counselors. “Everyone wants to rent.”
Demand for downtown apartments has outpaced supply, even as developers have built nearly 5,600 units over the past three years amid the worst economy since the Great Depression. That combination would normally make life miserable for landlords, but the depressed condominium market and shaky economy have saved them by encouraging more people to rent instead of buying.
“Renting just allows for flexibility in your life, and when people are uncertain, they want flexibility,” says David Lynd, president and chief operating officer of the Lynd Co., a San Antonio-based developer that recently completed EnV, a 249-unit apartment tower in River North.
Renters are choosing to rent in the luxury buildings even over renting the luxury condos, probably due to lower downpayment requirements and some lease incentives.
But the most surprising indicator of demand is absorption, or the change in the number of occupied apartments. Downtown landlords have rented out an additional 2,076 units since the end of 2009, an 11.7% increase, according to Appraisal Research. At the current rate, 2010 will go down as the best year for absorption since at least 2001, the earliest year for which figures are available.
And that’s despite a weak job market, usually the most important driver of demand for apartments. The Chicago area still had 69,300 fewer jobs in September compared with year earlier, but jobs are coming back, a good trend for landlords.
Developers have added 2,324 apartments to the downtown market in 2010, the most since at least 1999, the result of a construction boom that began before the financial crisis choked off development. With no new projects under way, it could be two years or more before apartment supply increases again, which could shift the market even more back in landlords’ favor.
“It’s a pretty tight market,” Mr. DeVries says. “It’s going to tighten down next year.”
Crain’s said several condo towers could go rental shortly including Lexington Park and Astoria Tower in the South Loop which will add to the inventory, but even that doesn’t appear to be enough to meet the demand.
Is renting now “cool” and owning passe?
Big rent hikes foreseen for downtown apartments [Crain’s Chicago Business, Alby Gallun, November 15, 2010]
