With the NAA Apartmentalize conference just around the corner, it’s a good time to check in on the host city for the latest installment of the Market Spotlight series. Chicago was a market that struggled in 2020, suffering annual losses in both average occupancy and average effective rent. However, the multifamily rebound for the area has been robust so far in 2021.

As always, all numbers will refer to conventional properties of at least 50 units.

New Supply and Net Absorption

Through July, new deliveries across the Greater Chicago area totaled just more than 4,200 units. This is somewhat higher than last year’s volume through the same portion of the calendar, but roughly 3,000 units lower than in the first seven months of 2019. While new supply this year has been within the range established in recent years, net absorption has been somewhere off the chart. A net increase in rented units through July of more than 13,000 units was more than the 2019 and 2020 numbers combined and was the strongest result since around 14,500 net units were absorbed in the same portion of 2013. The resulting average occupancy gain was 3.1% up to 92%.

Demand was fairly evenly distributed across the top three price classes, with each absorbing between 3,000 and 3,300 net units. Demand was more skewed from a geographic perspective. Three submarkets out of 25 for the Chicago market accounted for nearly half of the units absorbed. Encouragingly, two of the three were in the downtown area. The Loop – River West submarket led the way with about 2,900 previously unoccupied units leased in the period, and the N Michigan Ave – River North area added 2,200 net rented units. The only other submarket in triple digits was the Schaumburg – Mt. Pleasant region of the market with slightly more than 1,000 net absorbed units.

Average Effective Rent and Lease Concessions

After enduring an average effective rent loss of approximately 3.5% in 2020, a reversal in fortunes was sorely needed for Chicago. The change of the calendar brought exactly that. Average effective rent at the market level gained 8.5% through July, by far the largest gain since ALN began tracking Chicago rents in 2016. An almost 30% reduction in concession availability and a 32% decrease in the average concession value were a major component of the growth, but operators also pushed average asking rent up by nearly 6%. An average concession value of four weeks off an annual lease at the end of July was similar to the national average, but 18% of conventional properties offering a discount remained a little elevated compared to the nation as a whole.

As with many other areas of the country, the staggering rent growth number was not simply a product of movement at the top of the market but was felt more broadly across the price classes. At 14%, Class A appreciation led the way, but Class C average effective rent increased by 7% through July. Class D rent growth was more muted at about 3%, but even that was higher than is typical for a seven-month total. The two previously mentioned downtown submarkets each saw double-digit rent growth through July, as did the Oak Park – Melrose Park area. On the other side of the coin, rent growth lagged in the Rogers Park – Edgewater and Kankakee submarkets – with gains of 0.7% and 1% respectively.

Takeaways

The Chicago market limped through a tough 2020 as average net rent per unit fell by more than 5%. The picture has dramatically changed this year. Net absorption has been at a near decade high, and that strong demand has propelled rents higher at a pace not approached since ALN began tracking Chicago rents five years ago.

Below the market numbers, the rebound has been experienced across the price classes, and although not all submarkets have posted dazzling results, no submarket has continued to suffer rent retractions. Looking ahead through the rest of 2021 and into 2022, aside from continued uncertainty around COVID-19, a point of some trepidation is the pace of rent growth. While the current trajectory is unsustainable generally, the gains in the Class C space specifically are sure to exacerbate affordability concerns.

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