Chicago real estate markets poised for better days

We’re marching headlong into a dark winter — so we’ve been told now dozens of times. A continuing onslaught of COVID-19 records and milestones hammers home the point.

At least there are vaccines on the horizon, holding promise for 2021 if the nation can overcome distribution challenges and skepticism about the vaccine. Next year looks promising if we can cross the lonesome, cold valley upon us.

But has the pandemic changed us, particularly in how we embrace urban life? It’s all about crowds, really. When government and civic leaders talk about the virus’ effect on a global city such as Chicago, the undercurrent of concern is that maybe we won’t love the city quite so much once it’s safe to do so again. Maybe people won’t line up at the hot restaurants that reopen or see as many plays or museum exhibits.

But at this stage, it appears Chicago and its once-thriving core has lost little of its appeal for businesses and residents. That’s the main message from a reliable indicator of people’s wants and habits — the real estate markets, which show where the buying or renting happens. Consider this a temperature check for Chicago’s rebound readiness.

First is the office market. After the pandemic hit, some were afraid companies might hightail it to the suburbs or smaller cities. Real estate experts say that isn’t happening; companies are sitting tight, sometimes renewing leases on shorter terms.

Researchers at the firm Cushman & Wakefield analyzed data from six of what it calls “gateway” cities, including Chicago. In November, they reported no evidence of an out-migration either to distant cities or to the suburbs.

In the “gateway” downtowns, lease renewals during the third quarter accounted for a larger-than-usual share of all regional transactions, “suggesting that during periods of heightened uncertainty, many businesses simply opt to stay put,” the researchers said.

Yes, office rents are declining and vacancies rising. Tenants have leverage they haven’t enjoyed since the Great Recession. A spate of new office buildings started that, and the infection-recession inflamed things. A challenge is a surge in subleases from companies in cutback mode. MB Real Estate said downtown Chicago’s available subleases are up 50% since the start of the pandemic and now cover almost 4.9 million square feet, more than a Willis Tower’s worth of space.

The market is working as it should, and companies will respond as landlords cut deals.

What about homebuyers? Early in the pandemic, there were signs of more demand in the suburbs. The latest numbers show city neighborhoods are catching up. Some theorize the pandemic, abetted by astonishingly low interest rates, has rushed families into the housing market and generated sales that otherwise would have occurred over a leisurely couple of years.

October sales and median prices were up sharply from a year ago for both Chicago and the region, according to a report from the Illinois Association of Realtors. Year-over-year, the city saw October sales increase 21.9% and the median price rise 14.5% to $315,000, the report said. For the nine-county region, sales rose 39%, and the median price grew 14.2% to $274,050.

“The main issue is the lack of inventory. It’s down to historically low levels, one to two months of inventory …. There are a lot of bidding wars,” said Geoffrey Hewings, emeritus director at the University of Illinois’ Regional Economics Applications Laboratory. Hewings analyzes data for the Illinois Realtors.

Some buyers moved on from downtown apartments, and that’s a sector that’s also weak, said Ron DeVries, senior managing director at Integra Realty Resources. The summer unrest left its mark, but the current softness is mostly due to employers’ preference for keeping workers at home, he said. Why have an expensive downtown pad when you don’t need to be close to your job?

What with “Zoom fatigue” and general nostalgia for seeing co-workers again, Hewings detects workers want to get back to familiar ways and visit the old haunts. That bodes well for real estate demand in and around the Loop.

As Redfin chief economist Daryl Fairweather put it in a review of markets nationwide, “Many buyers are crossing their fingers that restaurants, bars and shops may be bustling again in the next year or so, and they’re looking to invest in the eventual resurgence of cities.”

With a little luck, the old haunts will be there to crank up Chicago’s mercantile machine.

Pat Nabong/Sun-Times