Saturday, November 11th, 2023
Why We’re Bullish on Chicago’s Downtown Rental Market
The residential rental market in Chicago has been a top performer, with strong fundamentals and promising prospects.
One of the primary factors fueling the demand for apartments in Chicago is the rising prices of single-family homes. As home prices continue to climb, more individuals and families are opting for the flexibility and affordability of renting. Additionally, the hybrid work-from-home trend has played a significant role in driving demand. With more people working remotely, the appeal of living in vibrant urban neighborhoods close to amenities and transportation has increased.
The work-from-home trend has not only influenced the demand for apartments but has also shaped design trends in the rental market. Renters are now seeking units that offer dedicated workspaces and flexible layouts to accommodate their remote work needs. Developers and property managers are adapting to this demand by incorporating home office spaces, high-speed internet connectivity, and communal work areas into their apartment designs.
New construction projects have faced challenges due to rising interest rates and development costs. Tightened capital markets have made it more difficult for developers to secure financing for new projects. Additionally, the increase in development costs, including construction materials and labor, has put pressure on profitability. These factors have contributed to a slowdown in new construction, limiting the supply of available apartments. Demand far exceeded supply in 2021, and readjusted over the last two years. However, the ratio of supply vs. demand is trending back toward demand exceeding supply again by 2025. As a result of supply trending slightly lower than demand, there’s less competition between new construction buildings that are being delivered, resulting in climbing rental rates and quick and successful lease ups. With rental rates high, renters are disincentivized from looking elsewhere, and renewal and occupancy rates have stayed high in tandem. Nearly every downtown neighborhood has far exceeded pre-pandemic rental rates per square foot.
Additionally, the potential for interest rate hikes could affect rental demand, as higher rates may reduce purchasing power and influence individuals to continue renting. With so many luxury apartment buildings offering condo-grade finishes and appliances as well as top tier amenities at no additional cost, many would-be purchasers are content with continuing to rent.
Furthermore, the city of Chicago has been strongly incentivizing corporate relocations, specifically in the tech and biotech sectors. Because the cost of living in Chicago is low relative to other tech hub cities, like Seattle, Boston, New York, and San Francisco, top talent continues to choose Chicago as a place to live and work.
Chicago’s residential rental market continues to perform well, driven by strong demand and favorable market conditions.
Looking for luxury apartments for rent and more information on new construction in downtown Chicago? Contact us today!