Downtown Chicago’s apartment market is cooling off after a scorching stretch.
With strong occupancy levels and rent price growth tapering, the apartment market has hit a sweet spot, Crain’s reported, citing data from appraisal and consulting firm Integra Realty Resources.
Rent is still rising in Chicago, but at a slower clip. The net rent for Class A apartment buildings was $3.61 per square foot last quarter, the outlet reported. That’s up 1.7 percent from a year earlier, marking the smallest annual increase in two years and below the average annual increase of about 3.8 percent in the decade before the pandemic. The downtown occupancy rate was 94.4 percent last quarter, compared to 94.5 percent one year prior.
Since the pandemic struck, downtown office and retail markets have been in shambles, as remote-work trends and an increase of online shopping push vacancies up. Apartment demand is high, though, showing that people want to live downtown even if they’re not working in the area.
The West Loop, specifically, which includes the buzzing Fulton Market District, has seen a massive influx of new residents in recent years, and developers are taking advantage of the area’s frenzied growth. Nearly 1,100 apartments are slated for completion in the neighborhood this year, and 2,300 more are expected to open in 2024.
Some landlords feared that builders would get overzealous with new apartments to meet the growing demand, which would force them to lower rents. However, 2,900 apartments are expected to be completed in downtown Chicago this year and 3,700 in 2024, down from an earlier prediction of 5,600 units for 2024, the outlet reported.
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Yet, some developers could hit the pause button on their apartment projects given current market conditions. High interest rates and a tight lending climate are making it difficult to attain the financing needed to get a development off the ground.
In the meantime, even lower quality apartment buildings are reaching new heights with rents. At downtown Class B buildings, the net rent rose 4.5 percent year-over-year last quarter to a record $3.05 per square foot.
— Quinn Donoghue