Can Chicago’s Downtown rental boom last?

The proposed Tribune Tower project would add even more units to an already surging supply

A rendering of Golub & Company and CIM Group's Tribune Tower
A rendering of Golub & Company and CIM Group's Tribune Tower

The long-awaited plans from Golub & Company and CIM Group for the Tribune Tower property call for a massive mixed-use development that would transform the area where the Magnificent Mile meets the Chicago River.

In addition to all the new retail, luxury hotel rooms and condos, the $1 billion project would include 439 new rental units in the proposed 96-story skyscraper that would go up east of the landmarked tower starting in 2020.

But with Chicago’s Downtown rental market already showing some signs of oversupply, will the area be able to handle all the new inventory?

“At some point there will be a limit to what the market can absorb,” Related Realty’s Gail Spreen said.

Last year, more rental units were delivered Downtown than in any year on record — 4,348 — according to figures from Integra Realty Resources, an appraisal and consulting firm.

While the firm expects the pace to slow this year, with a total of about 3,000 units to deliver, it’s projected to rebound in 2019, with about 4,200 new units. The annual average over the past 25 years has been 3,200 new units, according to Integra.

And deconversions, like the $60 million, 292-unit deal Golub and USAA Real Estate recently closed at Century Tower, are tipping the inventory balance even more toward rentals in many parts of the city, including Downtown.

“Just given the strength of the rental market, it’s probably easier to develop rental than condo right now,” Integra’s Gail Lissner said.

Some of that demand might be driven by recent job growth Downtown, as large companies like McDonald’s leave office space in the suburbs and come to the city center.

A rendering of McDonald’s new HQ in Fulton Market (Credit: Sterling Bay)

According to Integra, Downtown added 19,448 workers in 2017, a 3.4 percent increase from a year before — the biggest single-year gain in at least five years.

Even if the influx continues, will there be enough demand to fill all the new apartments?

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Related Realty’s Spreen said it matters what part of Downtown a project is in.

The Tribune Tower project’s location in Streeterville near the river and the Michigan Avenue shopping district will make it attractive, Spreen said.

“This is probably as good as it gets,” she said.

At the far end of the downtown area, in the South Loop, new inventory could present a bigger challenge.

Crescent Heights is building a 792-unit rental tower called One Grant Park in an area that includes a 479-unit project being built by Oxford Capital and several other large rental projects.

The projects will bring thousands of new units to a part of Downtown that doesn’t have as much of a longstanding history as a residential area as neighborhoods like Streeterville or the Gold Coast.

“I think the South Loop is going to have a few challenges 12 to 18 months from now,” Integra’s Ron DeVries told Crain’s in February.

A rendering of One Grant Park

Aaron Galvin, CEO and founder of luxury Living Realty Chicago, said whether the new inventory will be absorbed comes down to whether developers make the rent feel worth it to tenants.

“Really you have a tale of two rental markets: There’s a very high-end market with larger unit sizes, and then there are the projects with smaller units, that’s where the majority of the demand is,” he said. “I think if a renter is going to pay the premium for those smaller units, they’re going to demand uber-nice finishes, excellent views and prime locations.”

Kyle Stengle of Marcus & Millichap’s investment, national multifamily and mixed-use group, said the rental boom Downtown is unlikely to last much longer.

“At some point there’s just going to be too many units and we may already be there. The overall feeling is that the market’s getting over-saturated. Without a doubt it’s something to watch.”