Downtown Chicago Rent Growth Rising Amid Lack of Construction

Rents increased modestly for Class A apartments in downtown Chicago last year, and it has to do with a lack of construction deliveries.

The average rent for premium apartments reached $3.60 per square foot in the fourth quarter, a 2.56 percent rise over the same period in 2023, according to Integra Realty Resources, Crain’s reported.

This increase was relatively small compared to the annual inflation rate — 2.9 percent in December and 2.7 percent in November.

Fewer than 300 new apartments are expected to hit the downtown market this year, one of the smallest numbers in 20 years, as developers are opting to hold off on large-scale projects.

Challenges in securing construction financing, high interest rates and the unpredictable real estate tax system in Chicago have made it harder for developers to take risks and invest in projects.

Downtown Chicago is still recovering from the slow return of office workers and reduced demand, which in turn affects apartment demand. But rents are still rising modestly due to the limited supply.

High mortgage rates that make buying a home more difficult also funnel demand for rentals.

Several residential developments are slated to go live in Chicago’s South Loop this year. Q Investment Partners and Melrose Ascension Capital, for instance, are in lease-up at Straits Row, an 18-story residential tower at 633 South LaSalle, in the South Loop’s Printers Row neighborhood.

Meanwhile, CMK is close to opening its 149-unit development at 1717 South Michigan Avenue this Spring. The development will stand next to the firm’s existing apartment development at 1720 South Michigan, which rises 33 stories and contains just under 500 units.

Rent growth is projected to slow this year, due to a decline in employment within sectors that typically support high-paying renters, particularly in professional and business services.

— Andrew Terrell