We did a double take too. Since 2000, the Chicago market has delivered or renovated 55,324 units. We’re talking all classes and properties with 20 units or more, excluding student housing and affordable housing.This number speaks to a Chicago market nearing the peak of the multifamily cycle. Rents have risen sharply since the turn of the century, mirroring a national trend. With roughly 7,000 units flooding the market in the next 24 months, though, we’ll likely hit our local capacity and see new supply start to taper.
Urbanization ignites Fulton Market and Kennedy West
River North may lead the downtown submarkets in highest unit rent, but emerging areas like Fulton Market are seeing greater growth. Areas around River North are also enjoying its spillover effect, since sky high prices are forcing renters to consider other up-and-coming, more cost-effective submarkets.
Population growth thanks to this outward migration has been largely driven by a younger demographic, which is settling down in Fulton Market, River West and the Far West Loop. It’s been called the New Urbanization Era of Fulton Market and the surrounding Kennedy West area, and it’s composed of dream tenants—millennials with a high median income. Of Chicago’s top submarkets, Fulton Market holds the second-highest concentration of residents between the ages of 22 and 35.
Are rents still attainable?
While conventional wisdom tells us millennials prefer experiences to material possessions, that doesn’t mean they’re not paying up for a plush pad. The question is, are they living within their means?
“Attainable” rent is what renters in each income bracket can practically afford, assuming 30 percent of income goes toward monthly rent. Fulton Market leads the Chicago area in average income, attracting increasing numbers of residents who can afford its higher rental rates.
Investor appetite driving up per-unit pricing
Among all market-rate institutional-sized transactions (50+ units) from January 2015 to November 2016, Streeterville achieved the highest per-unit sales pricing—although the submarket experienced few overall trades. The 198-unit property at 850 N. Lake Shore topped the list in April, trading for a market high of $707,071 per unit.
Partly due to sheer geographic size, the Loop submarket experienced high transaction volume at the second highest per-unit sales pricing whereas the South Loop experienced high transaction volume at the lowest per-unit sales pricing.
We know cap rates for Chicago’s core product continue to compress, but where do we stack up nationally? Primary markets across the U.S. have compressed by 20 basis points and overall cap rates have tightened 10 basis points year-over-year. Going forward, look for a leveling off locally as significant new supply comes online.