Chicago MF Fall housing report from Yardi Matrix

[Chris T.]

I just came across this last week, and got permission from them to share.  You can download the entire pdf file on this link. Interesting read. 

https://www.yardimatrix.com/Institutional-Research

CHICAGO MULTIFAMILY

Market Analysis

Fall 2016

Contacts

Paul Fiorilla

Associate Director of Research

Jack Kern

Director of Research and Publications

Author

Ioana Neamt

Senior Associate Editor

Will Slow, Steady Growth Win the Race?

Recent Chicago Transactions

As one of the largest metros in the U.S. and the center of the Midwest, Chicago

remains a top target for investors, though its rent growth keeps trailing most

of the nation. Growth is moderated by a demographic slide and decline in the

city’s manufacturing base and financial market activities. Market conditions are,

however, improving, with roughly $2.1 billion worth of properties changing hands

year-over-year through September.

Chicago’s real estate market is healthy in other respects. The metro added 61,000

new jobs in the past year, and a plethora of companies are expanding their

footprint, including McDonald’s, Motorola Solutions, Google and WeWork. The

small but vibrant Fulton Market submarket is slowly evolving into a new hotspot

for tech firms, while redevelopment projects are sprouting up all across the Loop.

Related Midwest is planning to undertake one of the largest developments in

city history on a 62-acre riverfront site in the South Loop, while city officials plan

to turn the 49-acre Michael Reese Hospital site in South Side Chicago into a new

mixed-use destination.

While population growth is weak, young professionals are still drawn to the

region. Apartment development is picking up, as more than 60,000 units are in the

pipeline. Nonetheless, the market’s rent growth rate still hovers below the national

average, and our forecast calls for a modest 2% appreciation at year-end 2016.

Chicago Multifamily | Fall 2016 

Chicago vs. National Rent Growth (Sequential 3 Month, Year-Over-Year)

Rent Trends

Rents in Chicago rose 3.5% year-over-year through September, trailing the nation’s 4.7% growth rate, while average rents across the metro stood at $1,307, slightly above the $1,219 national average. Rents in the Lifestyle segment, at $1,731, are significantly higher than those for working-class Renter-by-Necessity assets ($1,202), driving demand for more affordable assets. Submarkets with the highest rent growth include Arlington Heights (21%), Irving Park - Logan Square (15.7%),

Woodlawn (10.2%), Kenwood (7.9%) and Wilmette - Northbrook (7.6%). These submarkets offer easy access to the city’s downtown and all its major employment hubs.

Suburban locations are increasingly more appealing to renters, partly due to the city’s recently expanded transit oriented development (TOD) zones and slightly lower rental rates. Multifamily construction in the metro will remain elevated, as more than 60,000 units are in the pipeline, pushing vacancy up. As more companies expand their presence in the region, demand for rentals is expected to remain healthy. As is the case with most slow-growth Midwestern markets, we expect rent growth in Chicago to lag behind national averages. Yardi Matrix expects rents to expand by a modest 2% at year-end 2016.

Economic Snapshot

Chicago added 61,000 new jobs during the 12 months ending in July, a modest 1.5% change year-over-year. More and more companies are moving to or expanding their presence in the metro, as the city’s economy shifts away from manufacturing toward technology or financial jobs. In 2018, McDonald’s is moving its headquarters to the bustling Fulton Market neighborhood, which is already home to Google’s Midwest base and Glassdoor.

The metro is currently experiencing a hotel boom, with 17,500 new jobs added in the leisure and hospitality sector, a 3.7% increase. A plethora of new hotels have been completed or are in the works in the city, including three new projects planned at O’Hare International Airport and the first-ever hotel on Navy Pier.

The trade, transportation and utilities sector added 10,800 jobs, up 1.2% year-over-year. Chicago’s strategic location draws investment to the market, including IKEA, which will establish two large warehouse facilities in Joliet, meant to serve its clients in the Midwest. Whole Foods also broke ground on its new Midwest distribution center in South Side Chicago this spring. The location will serve as many as 70 store locations across the Midwest and Ontario, Canada.

City officials are working on the rehabilitation of Chicago’s iconic Union Station, the third-busiest rail

terminal in the U.S.