It’s basic economics: as a result of the slowdown in construction during a pandemic, the demand for apartments is high and the supply is low. According to the Integra, developers plan to complete only 1,500 apartments downtown this year, the lowest total in 10 years.
A strong local employment market is fueling the demand side of the equation. When companies hire, their new hires tend to rent a nearby apartment. Even though many downtown professionals are still working on remote or hybrid schedules, the rules seem to be maintained, reducing the need to be near the office. And if the increase in downtown crime scares some renters, that number doesn’t seem to reflect the cause of fear yet.
Rising mortgage rates should push up the cost of single-family homes and condominiums, and push the apartment market out of the reach of many buyers.
“This helps maintain tenants in many of these buildings,” said Ronde Breeze, Senior Managing Director of Integra’s Chicago office.
According to Integra, downtown apartment occupancy was 94.5% in the first quarter, down slightly from 94.7% in the fourth quarter of 2021 but up from 91.1% in the previous year.
It’s not just the high end of the downtown market that’s booming. Net rents for cheap Class B buildings in the quarter also rose to a record $ 2.92 per square foot, up 18.7% year-on-year, according to the Integra. Net rent includes concessions such as free rent.
“I wouldn’t be surprised if rents rose another 5% this year,” De Vries said.
With limited competition, this is a great opportunity to become a developer in a new building. The rental office recently opened in Millie, Michigan. This is a new 47-story skyscraper on 300 N. Michigan Avenue with 289 apartments.
“It’s really working,” said JR Berger, managing principal of the Chicago-based Magellan Development Group. “It definitely exceeds our expectations.”
Millie’s apartment is rented in the mid- $ 4s per square foot range and is one of the tallest downtown buildings that Integra is tracking, Burger said. The tower contains a 280-room CitizenM hotel. Starting from the 17th floor above the hotel, the apartments offer stunning views.
Berger estimates that rent for Cascade, another Magellan apartment on Lakeshore East, has risen by about 20% from the 503 properties that opened in August last year.
“We are fully leased and far better than proformers,” he said.
However, rising rents will price some lessees from the downtown market. DeVries expects a spillover effect as more tenants move around downtown in search of cheaper buildings.
“What people don’t want to do is move from building A to building B,” he said. “But they may give up the place a bit.”