MARKET SNAPSHOT: Chicago’s Suburbs are Faring Better than Urban Core

By Erika Schnitzer, Associate EditorChicago—While the Windy City has been faring relatively well on its supply side, its demand leaves much to be desired, according to Greg Willett, vice president of research and analysis at M|PF Yieldstar.Occupancy is sitting at an average of 92.4 percent, down 190 basis points year-over-year. While this number may not seem so low for some parts of the nation, Chicago usually sees a 97 percent occupancy level, notes Willett, “so to them, it feels really bad, even though it’s not as steep a cut as other markets.”Unlike many other major markets, Chicago’s suburbs—which are, on average, seeing between 92 and 93 percent occupancy—are performing better than the city’s urban core, which currently is 90.1 percent occupied.  As Willett notes, this is in part due to the fact that “all of the metro’s construction is in the Loop or just outside—it’s a very urban concentration.”Furthermore, because, as Willett points out, “much of the employment is in the urban core, and they just delivered way too much product,” Chicago’s loss of more than 130,000 jobs in the last year has not helped matters.In addition, much of what had been slated for condos has been converted into rental housing, adding to the already-oversupplied market, Willett tells MHN. Currently, the city has 3,200 units under construction, most of which is located downtown.Consequently, rents have dropped 2.3 percent year-over-year.While there is some shadow market effect from single-family homes in the western suburbs of the city, Willett maintains that the real impact is stemming from the downtown area.  He notes, “the real struggle is in the top-tier product that’s been delivered recently, since 2000.” He says that projects built since the turn of the century are averaging 77 percent occupancies.In terms of when the market will turn, Willett notes, “It’s going to take a while to work through what they’re dealing with. Downtown is the area struggling; it’s different than other markets, where that would tend to be the bright spot. I think that until we get the economy under control in Chicago, they will just struggle.”(Click here to see last week’s Market Snapshot on Los Angeles.)