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Posted over 8 years ago

Chicago Multi Family Outlook 2015

  • During 2015, the city will receive 3,700 new apartments, a 1.7 percent expansion in inventory. This is the highest level of completions since 2000. Last year, 3,000 rentals were delivered.

Suburban

  • Developers finalized 630 apartments during the first six months of 2015, with roughly half of the units in the North Cook County submarket. These additions raise the year-over-year completions to more than 1,600 rentals, and this is down from the prior period’s 2,600 units.
  • At midyear, there were approximately 4,800 rentals underway in the suburbs. The Evanston/Rogers Park/Uptown and the Lake County/Kenosha submar­kets each were scheduled to receive more than 900 apartments. Also, another 32 projects have been proposed that will offer 4,500 units; however, the ma­jority of these have not yet announced a start date.
  • The largest project brought online during the second quarter was Tapestry Glenview in the North Cook County submarket. The 290-unit development has convenient access to Interstate 294.
  • Outlook: Following an inventory expansion of 1,600 suburban units last year, completions will increase to 2,900 rentals this year. This is the highest pace of deliveries since 2002.

Vacancy and Rents

City

  • Over the last 12 months, vacancy declined 80 basis points to 4.2 percent in the second quarter. The tightest vacancy was recorded in the Lincoln Park submarket at 2.9 percent.
  • New inventory leasing up and the decrease in vacancy pushed the average ef­fective rent up 6.1 percent over the past four quarters to $1,803 per month.
  • Outlook: A wave of new inventory coming online will drive up vacancy 10 basis points year over year to 4.7 percent. During this time, new luxury units will contribute to a 6.8 percent jump in effective rents to $1,810 per month.

Suburban

  • Suburban vacancy receded 30 basis points to 3.7 percent year over year in the second quarter, after a 60-basis-point drop one year earlier. Vacancy in the North Cook County submarket rests at 2.2 percent.
  • In the second quarter of 2015, average effective rents climbed 2.7 percent to $1,109 per month. This follows a 3.3 percent increase one year earlier.
  • Outlook: New inventory will limit vacancy improvement to 10 basis points year over year as the rate ends 2015 at 3.9 percent. During this time, average effective rents will jump 3.7 percent to $1,115 per month.

Sales Trends

City

  • Over the last four quarters, transaction velocity in the city climbed 7 per­cent, limited by a lack of available properties. Investors were most active in the Lakeview and Logan Square neighborhoods where mainly local investors sought properties with fewer than 50 units.
  • During this period, accelerated competition for listed assets and the sale of premium properties contributed to higher prices. In the Downtown Chicago submarket the average price jumped 32 percent year over year as the per unit price neared $341,800.
  • Outlook: The surge in construction will provide additional buying opportu­nities for institutional investors and life companies as developers sell projects to fund their next endeavor.

Suburban

  • Deal flow in the suburbs ticked up 5 percent over the last 12 months ending in June, following a 32 percent hike one year earlier. During the most recent period, investors were active in the West Cook County submarket where sales more than doubled.
  • Prices vary widely throughout the suburbs. The average sales price was $65,400 per unit in Southwest Cook County, while the average price in Evanston neared $200,000 per unit. Cap rates for properties with fewer than 200 units in good locations will average in the mid- to high-6 percent range.
  • Outlook: A lack of available properties being marketed for sale will dampen transaction velocity this year. Demand, however, will remain heightened for well-located assets with value-add potential. If priced appropriately, these properties will garner multiple offers near list price.
  • Local Highlights
    1. Kraft Heinz has signed a lease for 170,000 square feet in the Aon Center and will be moving its 2,300 employees to downtown Chicago in early 2016. This adds to the growing list of suburban companies moving into the city. The firm will sublease its current 700,000 square feet in Northfield and Glenview. This could affect apartment vacancy in the North Cook County submarket if some renters move closer to their job downtown.
    2. Yelp continues to expand in the metro. The tech firm leased another 72,000 square feet, nearly doubling its footprint in the Merchandise Mart and provid­ing the ability to add hundreds of employees. This should benefit the many luxury apartments nearby.
    3. Amazon Prime Now is available in select ZIP codes in the city. The service, which promises one- and two-hour delivery of Amazon products, is expected to be rolled out in additional ZIP codes soon. This is an added amenity that may attract tech-savvy renters to apartments in the delivery zone.
    4. During the first quarter, the median home price in the metro rose 2.1 percent to $230,700. During the same period, the median household income climbed 3.2 percent to $63,375 per year. The median income is nearly $9,500 more than is needed to qualify for a median-priced home in the market assuming a 20 percent down payment and a 30-year fixed-rate loan.

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