Spring 2015: Battle for Downtown Chicago Apartment Renters Has Begun
Last week, Appraisal Research Counselors released their much-anticipated 2014 fourth quarter market report. Highlights from the report cite a positive end to an already great year for the downtown Chicago apartment market. Absorption reached the highest level since the real estate downturn, giving confidence to multifamily developers who are planning to deliver more than 6,000 Chicago apartments in the next 24 months. Rental pricing also hit an all-time high of $2.72 per square foot and was up 8.4% compared to the fourth quarter of 2013.
We’ve spoken about absorption before and its importance as it relates to lease-up. Of the 2,500 units absorbed in 2014, 1,000 were absorbed in the first quarter. Of Luxury Living Chicago’s 550+ rentals in 2014, 20% occurred in the first quarter as well. This speaks to how vital the first quarter of every year is when it comes to renting apartments.
We are currently in the middle of the first quarter of 2015, a time when property management companies and developers should be capitalizing on an excited renter base who is ready to lock down their new spring apartment.
There are two types of properties vying for renters in the downtown Chicago ultra-luxury apartment market – buildings opening this spring/summer in pre-leasing and properties that opened in 2013 and 2014.
With seven major buildings open for pre-leasing now, including Jones Chicago, North Water, Arkadia Tower, Jeff Jack, Eight O Five and State & Chestnut, it’s the perfect time for these buildings to rent a lot of apartments.
We are seeing renters ready to commit to summer move dates now, but when they go out to tour the buildings currently pre-leasing, they are not incentivized to make a decision because pricing is high and there are no concessions. Pricing is more in-line with July pricing and without being able to see the actual property, it’s difficult to compel a renter to pull the trigger without some kind of concession or incentive.
In turn, those renters are then touring the already established buildings in the downtown Chicago area that are similar in level of finish and quality and only one or two years older then buildings opening in a few months. These renters aren’t compelled to rent an apartment at these buildings either, because availability is unknown or pricing is significantly inflated because units vacant now have a huge premium if held for future lease start dates. It’s too early in a renewal cycle to know pricing and availability for units coming on the market in late spring/early summer.
This is creating a scenario where there are going to be a lot of apartments in May, June and July and a missed opportunity for buildings in pre-leasing to capture renters now.
This high pre-leasing pricing makes achieving a quick lease-up more difficult. The demand is there and everybody knows there are even more buildings coming in 2016. Why not get leased-up sooner? Having revenue the minute the building opens for occupancy will make up for any concessions given to get some deals done.
This is when it happens – there is so much excitement and enthusiasm for downtown Chicago apartments pre-spring time. People are motivated to make a change and leave the winter months behind.
I’d love to see an adjustment in pricing before the first quarter passes us by. Until then prospective renters need to sit tight for just a bit longer. Pricing should adjust accordingly to the season as we get a bit further into March.
As always, Luxury Living Chicago is here as a resource for our clients, property management companies and multifamily developers in Chicago.
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