Market Spotlight: Chicago

As 2020 draws to a close ALN is taking a closer look at various markets around the country and how multifamily has fared there this year through November. Most recently, Atlanta was covered. Next up, Chicago.

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

Greater Chicago Market View

At the national level, new construction delivery volume has been higher this year than last year to date. In the Chicago area the reverse was true. After about 8,800 new units were introduced through November of 2019, this year only about 6,700 new units were added. Unfortunately, this slowdown in deliveries was not enough to offset the downturn in apartment demand. Compared to last year, net absorption was down by 50% through November of 2020 for Chicago. A decrease in demand to this extent was more typical for markets around the country earlier in the year after a dismal second quarter.

Nationally, net absorption rebounded in the third quarter to such an extent that the year-to-date shortfall in apartment demand compared to last year was winnowed significantly. Not so for the Chicago market. Approximately 5,000 net units have been absorbed this year after more around 10,000 net units were absorbed in the same period of 2019. The effect of these new units and the reduced apartment demand was a 1.6% average occupancy decline, down to just below 90%.

The area did not fare any better on the rent front. After sitting right around 4% growth for average effective rent in the first eleven months of both 2019 and 2018, this year, effective rent growth stood at -2.7% at the end of November. Asking rent has remained essentially flat this year, so the negative value is due to a substantial increase in both the availability of concessions and the average concession package value. 24%% of conventional properties were offering a lease discount at the end of November, up 50% from 16% to open the year. Similarly, the average discount value has increased by 50% so far this year to one month off a 12-month lease.

Price Class View

As with Atlanta, one of the more interesting ways to parse Chicago multifamily performance so far this year is by price class. Unlike other markets in 2020 where demand was often down for the top two price tiers but up for the bottom two classes, net absorption fell across the board compared to last year. Also, unlike many areas of the country, it was Chicago’s Class B properties that performed worst.

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For Class A properties, a decrease in demand meant that fewer net units were absorbed than were added by the new construction pipeline by a margin of about 1,000 units. Average occupancy dipped 1.5% to just under 82%. Average effective rent declined by 4.8% thanks to a large increase in the availability and average value of lease discounts. The average lease concession stood at about six weeks off a 12-month lease to end November.

Class B properties were even harder hit. A 2.5% average occupancy loss brought the average to below 88% for this subset of properties. Even so, that loss was dwarfed by the 9% average effective rent loss for these properties. After a 60% increase since January, 35% of Class B properties were offering a discount to close November. Equally formidable to the prospect of notable rent growth was the increase in average discount value to nearly seven weeks off a 12-month lease.

Even in the bottom two price classes, demand was down by wide margins. In fact, Class C properties suffered a net loss of 300 rented units. A 2.2% average occupancy drop  brought the average for Class C units to below 90%. Rent growth, while not as poor as in the top price classes, fell by 2.5%. Here too, concessions made their impact felt. The availability of rent concessions for Class C units rose by 50% while the average discount value climbed 40%. For Class D, average occupancy hovered around 95% after a 0.3% increase from the start of the year. The availability and average value of rent discounts each rose by around 25% for Class D properties, but average effective rent growth still managed to hit 1.9%.


2020 has been a rough year for multifamily generally, but this is especially true for the Chicago market. Despite a decrease in new supply, both average occupancy and average effective rent are comfortably in negative territory for the year thanks to a 50% loss is apartment demand compared to last year.

Looking below just the market-level numbers, it is clear that the challenges were widespread throughout the market rather than being concentrated in one or two subsets of properties. Stabilized properties are in negative territory for the year for both average occupancy and average effective rent. Likewise, three of the four price classes are in negative territory in both metrics in addition to demand being down from last year in all four classes.

With the COVID-19 pandemic ongoing, the traditionally weaker first quarter still ahead and still other factors acting as a headwind to Chicago multifamily performance, the market appears likely to remain in rough waters in the near term.

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