Chicago Suburban Multifamily Is Hot. Could Rising Costs Put Out The Fire?
Chicago's suburban multifamily market is one of the hottest in the country after decades of developmental dormancy, but a chill could be nigh.
The area's ascension to relevance in the wake of pandemic-fueled relocation trends has developers designing projects to cater to a new clientele, panelists said at Bisnow's Future of the Chicago Suburbs event, held at Bell Works Chicago in Hoffman Estates.
But almost all of them agreed that a suburban multifamily supply shortage looms amid challenging financing conditions and rising expenses.
“Equity is not readily available for development right now,” said Andrew Juiris, president at Double Eagle Development. “Financing is relatively expensive compared to the last 10 years, so we're in a moment right now of transition.
“Supply is going to go off a cliff across the country, but definitely here, too,” he added.
The state of play in the suburbs has been a boon for developers.
More than 11,000 new multifamily units have been built in Chicago’s suburbs since 2020, according to the Daily Herald. Demand is keeping up, with low vacancy rates of about 4.4%, a RentCafe report says. Rental rates are strong as well.
The boom has led developers to rethink what property features best appeal to their new clientele, Juiris said. Ample parking is a must for multifamily in the area, as is density that doesn't overly disrupt streetscapes.
“The customer is your boss,” Juiris said. “You're designing towards a very specific demographic. Oftentimes in the city, that's usually a pretty easy calculation to make. But in the suburbs, you have a broader kind of menu of demographics you're working with.”
One of the biggest challenges with multifamily construction in and around suburban downtowns is the lack of available land to work with, said Justin Parr, partner at LCI Development Partners. Pricing can be expensive because the land is often desirable for a multitude of uses.
Combined with additional parking requirements compared to city development, that expense can make it difficult for projects to make financial sense, Parr said.
“Up until the last 10 years, really the last five years, the rental rates have not made sense for a lot of new development to come in,” he said.
The pandemic accelerated trends of renters seeking more space in the suburbs for lower rents, Daniel Management Group President Roger Daniel said. Developers followed in turn, with equity flooding the zone to meet renters' needs and build amenity-rich properties that meshed with a hybrid work model.
In many cases, suburbs welcomed the projects.
“The suburban locations really wanted this development,” Daniel said. “They were really thirsty for it. They wanted the tax revenue. And the city kind of could take it or leave it a little bit.”
Although times have been good over the past several years, new development could slow in 2025 because of a combination of tricky financing and high construction costs.
That could significantly impact housing affordability, Parr said.
“How do you deliver affordable housing at now super elevated costs?” he said. “From a developer's perspective, that's all we think about: cost inputs and drivers. Tariffs, immigration policy, those are things that people are very afraid of right now.”
