Class A Luxury Chicago Apartment Market Update – February 2021
February 1, 2021 | By Aaron Galvin

Hello Clients, Colleagues and Friends,

Prior to 2020 every panel, article, or conversation about the Chicago apartment market turned to some variation of “how much higher can rent prices go”? With an average of 3-5% rent growth annually for the better part of a decade, it had to stop at some point. And in the second half of 2020, it did. According to Integra Realty Resources, net rents in the Class A apartment market in Q3 2020 decreased by 18.4% as compared to Q3 2019. And while Q4 data is not yet finalized, it’s safe to say those numbers are going to be even lower. Apartments that used to rent over $2,500 per month were priced $500 – $1,000 lower last quarter. Needless to say, nobody will soon forget the challenges from the second half of 2020.

2020 Positive Trends

That said, I am taking a different perspective looking back at 2020. At Luxury Living Chicago Realty (LLCR), we had our best year ever on a leasing volume perspective and outperformed the market by 10% on a net rent basis in Q3. When Q4 data is released, I anticipate we will come out about 15% higher. That’s not to say we did not see significant year-over-year rent decreases, but when we had to lower rents, we did so with a continued focus on market intelligence and a strategic approach to the long term outlook for our rental properties.

In addition to leasing volume, here are three key metrics we tracked at LLCR that provide confidence in the short and long-term outlook for luxury Chicago apartments.

Lease Terms:

While the market did see significant rent decreases, at LLCR we have placed an emphasis on long-term leases since July 2020. These are leases 18 months or longer.

  • With an expected recovery beginning materially in 2022, we have now positioned our portfolio to maximize rents at this time.
  • With a narrative of urban flight, we wanted to provide evidence of renters’ long-term outlook on downtown Chicago. Regardless of price, if renters did not feel safe or believe in downtown Chicago, they would not have committed for an extended period of time.

The result was that we leased over 750 units since July with a lease term of 18 months or longer. This was up 35% compared to 2019, and we feel confident this was the right strategy for our developers and owners.

Renter Income:

Renter income remained relatively unchanged in 2020. The average income for the Class A Chicago renter in the LLCR portfolio in 2019 was $106,549 and in 2020 it was $108,471. This is important to note because even with price decreases, rent payments now make up exponentially less of a renter’s income, leaving additional funds for travel, culture, savings and most importantly, future rent increases. This remains a financially healthy renter base.

Relocation Traffic:

One of the driving forces for downtown Chicago’s growth over the past 10 years has been relocations. During this period the downtown core has grown exponentially, absorbing nearly all of the new apartments delivered. LLCR data from 2020 did not see a decrease in relocation traffic. As compared to 2019, we had an equal 40% of leases categorized as relocation. These are renters moving to downtown Chicago for work, school, or the opportunity to try a new city while working remotely.

With the vaccine imminent, larger employers plan to return to work in the second half of 2021. This should fuel even stronger relocation traffic by Q3 and the next couple of years.

2021 Positive Trends

As we now have a full month of data from January, I can confidently say we hit the bottom of the market in Q4 and things are trending in the right direction. Since a low in November, where the average net rent in the LLCR portfolio was $1,846, we rebounded in December to an average net rent of $1,944. January net rent MTD was $2087. Each week rents are increasing 1-3%. In addition, velocity is way up! In January the LLCR portfolio had over 300 rentals. This is up 97% from January 2020 and better than ANY month we had in 2020.  The spring leasing season has come early, and it’s time for us all to band together to strategically bring this market back to prominence.

In that light, I will be hosting the first ever Chicago Luxury Apartment Market Update on March 3rd from 4:00 – 5:30 PM. This virtual event will feature a even more LLCR data from 2020, a one on one Q&A with a recent Chicago renter, and a panel of seasoned and well-respected luxury multifamily developers discussing the day to day challenges of meeting Class A renter expectations and preserving value in a continued pandemic environment.

 

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