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As city reopens, property markets shake off the pandemic

Office and residential use is reverting to long-term patterns, which bodes well for downtown Chicago.

Shoppers cross the street in downtown Chicago in May 2021.
Downtown shoppers are growing more numerous, and the city’s residential and office use also is picking up.
AP file

Are you ready for a little return to routine? The property markets have you covered.

A year ago, the chatter was about whether the basic patterns of urban living would change because of the pandemic.

Would urban dwellers give up on downtown Chicago or the central parts of other major cities, especially if fewer attractions are around to keep them amused? Would people who work from home head to the boonies or beyond? And what about employers, many of whom have gravitated downtown to please younger workers and attract a more diverse workforce?

Some early trend stories indicated serious changes were afoot. Downtown apartments were going vacant, in part, because of last year’s riots and protests. A few writers found examples of people fleeing to suburbs or the countryside as if — gasp! — that’s never happened before. Address changes are part of life. The North Shore is filled with folks who sowed their wild oats in Lincoln Park and Lake View, just as downtown has empty nesters tired of mowing lawns.

You have to watch it with trend stories. You can find examples of people doing almost anything. Market statistics can be more helpful. With Chicago fully reopening, albeit, with residual effects from COVID-19, it’s worth noting the numbers show life snapping back to normal. People are headed back downtown, a lot of pandemic moves were rather standard affairs, and more companies are in the hunt for office space despite the likelihood of remote work persisting.

Ron DeVries checks on 144 downtown apartment buildings as senior managing director for Integra Realty Resources. He said after a 2020 of rising vacancies, the market registered a net increase in rented apartments of 2,667 in this year’s first quarter. It’s an “incredible” result, decent for a full year’s activity, DeVries said. “The city is reopening, and we expect a continued surge in demand,” he said.

Apartment hunters who were expecting deals may have lost out because the pandemic curbed new construction. “Pricing for apartments will spike in 2022 and remain elevated at least until significant new product comes to the market, likely in 2023,” DeVries said.

A lot of people moved last year but not far. Linsey Smith, Chicago research director at real-estate firm Cushman & Wakefield, crunched the change-of-address data. She learned that three of four people who moved in Chicago stayed in the city. Nine of 10 movers in the entire region stayed within it, she found. It’s consistent with recent years.

“It’s not a major outrush of people” to the suburbs or the bucolic wilderness, said Geoffrey Hewings, emeritus director of the Regional Economics Applications Laboratory, who analyzes markets for the Illinois Association of Realtors.

People might consider such a change but then confront issues in medical care, schools and commuting, Hewings said. He said home prices have been uniformly strong across city and suburban neighborhoods, with many properties getting multiple offers.

Homes prices are liable to cool. Hewings said many properties have become unaffordable for first-time buyers even with record-low mortgage rates. “People want to buy, but the supply’s not there, so a lot of people are going to stay put,” he said.

On the employer front, Cushman’s Smith has tracked a revival in downtown office leasing, with first-quarter business doubling from the prior quarter although well off the pace of a year ago.

She sees a lot of early indicators pointing to greater activity late this year: More users are touring potential offices, and companies that tossed subleases onto the market are taking the space back.

And last year, when business hit the brakes hard, the suburbs accounted for two-thirds of the region’s leasing, downtown one-third. Now, the proportion has reversed, returning to its historic norm, Smith said. “We haven’t seen major shifts in where tenants want to be located,” she said.

When the pandemic was raging, some suggested employers would use a hub-and-spoke system of satellite offices to limit commutes. That hasn’t happened because it’s expensive, and workers, if they head to an office, want face time with the entire team, Smith said.

Only about a quarter of offices here are being used at any time, she said. But that rate is picking up, and the trend should accelerate over the next two months with big employers calling people back to work. Now, if they’ll only get back on public transit instead of clogging the highways.

So the real estate markets absorbed a shock and are healing. It’s a good sign for the city itself and for all of us who, with masks still handy, await better days.