Chicago developers are bearish on new apartment building construction despite the continued high demand from renters. So what gives? Slimming profits.
Analysts now expect only 9,000 new apartment units between now and 2021, compared to a year, when they were predicting 10,700, according to Crain’s, which cited Integra Realty Resources data. That amounts to a dip of around 16 percent.
A downtown Chicago job boom has drawn renters to the area, adding to the already-growing trend of young professionals and empty-nesters remaining in the city and becoming renters, according to the report. In the spring, Integra reported that occupancy rate in Class A buildings — the newest and highest quality — rose to 94.3 percent, with a record $3.26 per square foot rent on average.
Developers also forecast a saturated market. Absorption, which is the number of new apartments filled, dipped to 1,350 units compared to the 1,700 predicted by Integra earlier this year.
Chicago also upped its requirements on affordable housing in new developments, which have lowered returns. That coupled with a slowing economy has brought raised construction costs, which general contractors now must also contend with, according to The Real Deal’s first ranking of Chicago’s top contractors.
Other factors could also play a part. New Cook County Assessor Fritz Kaegi implemented a new property tax assessment model that would result in higher tax bills for some. Developers fear that the city and the state will turn to property taxes to help ease financial troubles. [Crain’s] — Sarah Paynter