Vacancies Down, Rents Up in Chicago Apartment Market
Recently employed residents are forming new rental households in Chicago, which generates positive net absorption of apartment units; however, there isn't enough supply yet to meet that increasing demand.
By Dees Stribling, Contributing Editor
Chicago—There’s generally good news for metro Chicago apartment landlords, according to the latest report on the market by investment specialist Marcus & Millichap: Recently employed residents are forming new rental households in the area, which generates positive net absorption of apartment units; however, there isn’t enough supply yet to meet that increasing demand. So for the first quarter of 2012, the Chicago area saw a decline in vacancy and a rise in rents across the market.
In fact, the company predicts that growth will stimulate new demand and reduce marketwide vacancy to its lowest annual level in five years by the end of 2012, to about 4 percent in the city and suburbs alike. One of the main demand drivers will be employment in the metro area. During 2012, Chicago-area employment will expand 1.1 percent through the addition of 46,000 jobs, the largest annual gain in six years. In 2011, 35,400 positions were created.
Also, over the longer term, the market’s status as a mecca for college graduates should help sustain a vacancy rate in the 4 percent range, though the delivery of new rentals may eventually offset demand growth, Marcus & Millichap posits. While the pipeline of planned projects in the suburbs is expanding, the greatest potential effects of supply growth will register in the city, where completions will rise in 2012 and additional projects are on the drawing boards.
“Projects totaling only 139 units were completed in the 12 months ending in the first quarter this year, down from nearly 1,700 rentals in the preceding year,” according to the report, in regards to the dearth of new product. “Key recent completions include 48 units at the Douglas Green property in the City West submarket in the fourth quarter last year.”
Naturally, this kind of skewed demand-supply equation has had, and will continue to have, an impact on rents to landlords’ favor. The company forecasts that metro Chicago apartment asking rents will advance 4 percent to $1,108 per month and effective rents will rise 4.9 percent to $1,040 per month after gains of 1.7 percent and 2 percent, respectively, in 2011. Rents in the city will grow at a rate slightly greater than the metro average during 2012.