The Chicago-area apartment market, sustained by strong growth in high-paying jobs downtown, will see slight declines this year in the pace of new construction and rent increases, a new report shows.
But that doesn’t mean things will get any easier for renters struggling to find a place that’s affordable.
The report by the firm Marcus & Millichap forecasts average rent growth of 3.2% this year in the metro area, about half the rate of growth for 2018. It also projects that 7,800 new apartments will be built this year, down from about 9,000 in each of the past two years.
The combination of those factors should mean that apartment vacancy rates will remain relatively unchanged at a region-wide average of 5.3%, the report said.
“As long as the job creation continues, we’re going to continue to see the development activity,” said David Bradley, regional manager in Chicago for Marcus & Millichap.
He added, however, that the rising cost of materials and labor are making some development deals more challenging. Other factors that might limit new construction are government regulations, including Chicago’s requirement that downtown residential builders contribute to an affordable housing fund.
Bradley said some investors in multifamily properties are growing leery of Cook County because changes in property assessments could hike real estate taxes. There’s also concern about talk of rent control legislation possibly coming out of Springfield, he said.
Chicago needs to encourage apartment construction in its neighborhoods to address the affordability issue, he said. “The city has been losing a portion of its lower-income earners, and affordable housing is a major component of that,” Bradley said.
The report said the rental market for high-wage earners downtown is so robust that it’s having a spillover effect in distant suburbs as renters seek a better deal. The average monthly rent in the suburbs is $1,239 versus almost $1,900 in the city, Marcus & Millichap said.
Areas closer to downtown that offer cheaper rents are starting to see spillover demand include Evanston and the Rogers Park neighborhood, the report said. “Revitalization efforts in this part of the market are boosting its residential appeal, catering to those seeking proximity to downtown yet searching for relative affordability,” the report said.
Apartment investors interested in renovations have been interested in the Bronzeville, Pilsen and South Shore neighborhoods, where sales are promising landlords yields of about 8%, the firm said. It said foreign buyers are taking a harder look at suburbs such as Downers Grove, Mount Prospect and Oak Park.