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Chicago Property Values Mostly Recovered In The First Half Of 2021


A new survey by CBRE shows values for most property types in Chicago returned to pre-pandemic levels in the first half of the year, reflecting a general nationwide trend.

But the spread of the delta variant in the summer’s second half leaves some uncertainty hovering over most markets.

The survey of nearly 250 CBRE investment and valuation professionals in the top 25 markets also found that more than two-thirds of investors showed an increased appetite for risk during the first six months of 2021 and expected cap rates for most properties to either stay unchanged or even sink a bit through the rest of 2021.

“The rapid recovery across U.S. real estate markets was mostly made possible by the massive fiscal and monetary response to the Covid-19 downturn that stabilized the economy and benefited property values,” CBRE Global President of Capital Markets Chris Ludeman said in a statement. “While some uncertainty remains, a strong economic recovery will continue to benefit property fundamentals, investment volumes and values.”

CBRE researchers recorded cap rates for stable properties and compared them to the rates seen in the second half of 2019. In the Chicago area, most property types staged a comeback from 2020.

Cap rates for Class-A offices in downtown Chicago compressed when compared to 2019, according to CBRE, which found similar declines in other top markets such as Washington, D.C., Los Angeles and Dallas, among others.

Chicago cap rates in 2019 ranged between 5.5% and 6.75%, but by this year, the range narrowed to between 5.5% and 6.25%. Class-A suburban properties in the Chicago metro area started out less popular than downtown buildings and nothing changed that. Rates stayed rock steady at between 7.25% and 8.25% even though most Midwest suburban markets saw cap rates rise.

The pandemic didn’t hurt multifamily markets in many cities, including Chicago, especially this year as Class-A leasing came back strongly. Like most top metros, cap rates for Chicago’s Class-A urban infill multifamily declined this year, from a range of 4.5% to 4.75% in 2019, down to between 4% and 4.75%.

Reflecting the strong fundamentals seen during the pandemic, suburban multifamily performed even better with investors, CBRE found. All of the top 25 markets studied saw cap rates either decline or remain steady. In the Chicago metro area, rates sank from a range of 5% to 5.25% to between 4.5% and 5.25%.

Not surprisingly, every market surveyed by CBRE saw cap rates decline for industrial properties. In the Chicago metro area, rates fell from a range of 4.5% to 5% to 4% to 4.25%.

“This reflects strong investor appetite for the product type, which benefited from strong e-commerce demand during the pandemic,” according to CBRE.

Retail was a mixed bag throughout much of the U.S., with a few markets seeing cap rate compression. But in the Chicago area, investors seem leery. Rates increased from between 5.5% and 6% to between 6% and 7%.

And although the tourist trade returned to Chicago hotels this year, investors are still skeptical of that sector, sending cap rates for full-service downtown locations from between 7.25% and 9% to 9.25% and 10%.