Downtown Chicago Apartment Rents Drop – Good News for the Chicago Renter

This week, Crain’s Chicago Business, ran an article with the tagline “Uh Oh. Downtown Apartment Rents Drop.” That might be bad news for developers who aren’t able to maintain the high pricing and low vacancies of early Summer 2013, but that’s music to renter’s ears as renting a downtown luxury Chicago apartment becomes attainable once more.

We saw this coming from a mile away. Because we are on the ground working with renters and speaking with property managers and developers daily, the writing has been on the wall. The first sign of a decline in pricing came about 90 days ago when properties started offering concessions of one, and even two, months free rent. An incentive we hadn’t seen since 2010.

In the Crain’s article, David Carlins, president of Chicago-based Magellan Development Group LLC and partial owner of Aqua at Lakeshore East, is interviewed. Aqua has really been feeling the pinch, going from 98% occupancy a year ago, to now sitting around 86%. That equates to 57 vacant apartments – a huge number for a building that used to only have one or two apartments available on a good day. Now those same apartments are renting for between $500-$700 less per month than at the height of the market.

Another trend we have picked up on is the demographics of renters returning to the downtown apartment market. Many of these renters used to live in places like Aqua when they were first built in 2009 and 2010. When the market jumped up and rent increases exceeded 10%-20% annually, those renters moved to the neighborhoods giving up the convenience and luxury of the downtown high-rise to save some money.

Now those renters are coming back downtown. They are able to get a better price on even newer rental inventory. Even the newest luxury, full amenity buildings are offering upwards of two months free rent in the attempt to fill up before the next round of new developments come online in Spring 2014.

The demand is still very much there for downtown apartment rentals. Especially as companies continue to open and relocate to downtown Chicago, past renters return to downtown and new renters discover the luxury of living in the state-of-the-art high-rise. Everyone must keep expectations in line. The newest properties are still going to be able to command the highest prices, but developers do need to be realistic about pro formas, pricing and ROI.

With 5,000 new units coming to market in the next 24 months, this is all very exciting. I certainly look forward to seeing how it all plays out.