Chicago rent growth outpacing nation as market cools

Supply expected to increase and lease renewals to decrease in 2023

(Photo Illustration by The Real Deal with Getty)
(Photo Illustration by The Real Deal with Getty)

While 2022 was a banner year for Chicago apartment rent growth and lease renewals, growing supply and a cooling market could mean more deals for prospective tenants.

Chicago’s rent growth outpaced the national rate several times over, according to the latest monthly report from Rents in the Windy City increased by 20.8 percent year-over-year in November, while rents nationally continued a monthslong trajectory of single-digit growth with a rate of 3.4 percent.

Chicago was accompanied by other large metropolitan areas including Boston and New York in netting strong rental growth relative to the rest of the country, according to the report.

“I think Chicago has held its own compared to other markets. You’re not going to see quite as high of rent increases as you would in some other areas, it’s always been a pretty steady market,” Ben Creamer, of Chicago rental agency Downtown Apartment Company, said. “I don’t think we’re going to see some of the rent dips.”

Less new supply than usual was delivered to the market last year, which put upward pressure on rental rates. Multifamily builders completed the smallest quantity of units in the Chicago area since 2015, with just under 6,200 units finalized and inventory expanding by less than 10 percent in 2022, according to a third-quarter report from Marcus & Millichap.

Demand for housing downtown is also being driven by a tightening labor market, Downtown Apartment Company’s Quentin Green said. With employers gaining back some power, more are requiring that workers come into the office or relocate for a job, and apartment seekers want to live close to where they work.

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“The demand has been incredible,” Green said.

While the past year has been rosy, with Chicago still achieving positive rent growth, demand has cooled and some people who might have thought about moving might not amid economic uncertainty and rising interest rates, Integra Realty Resources’ Ron DeVries said. Much of that slowdown happened in the fourth quarter last year, he said. Still, he noted the strength of the high-amenity West Loop and River North submarkets.

Last year also set a record for lease renewals nationally – more than 57 percent of market-rate renters with an expiring lease renewed between May 2021 and May 2022, compared to the previous 2010-2019 average of about 52 percent, according to the most recent analysis from RealPage.

With new housing stock becoming available, Creamer and Green said they expect fewer lease renewals, meaning apartment seekers might see the return of concessions, such as one month rent-free, that disappeared in 2022 after they were abundant in the first two years of the pandemic.

“What happens, too, is if the market does go towards like a month free or if they do two months free or something, when people are looking, they want that deal,” Creamer said, adding that landlords will pile on with concession offers if they notice competitors making them.

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