Renter Demand Continues to Drive Apartment Rents
Healthy employment gains will generate enough renter demand to offset a glut of apartments in the pipeline. Foreign investors are still attracted to multifamily developments in high-demand submarkets. And rents will continue to rise. Those are the main findings of Marcus & Millichap’s Q4 apartment research market report, released this week.
Developers will deliver 6,600 new apartments by the end of the year, up from 4,600 in 2014. Of that number, Chicago will see 3,700 new rentals. But the continuing trend of suburban companies relocating to the city (Chicago has seen a 1.1% increase in total employment this year) will more than offset supply-side pressures and drive rents higher heading into 2016. This year’s average rent surged 6% to $1,320 per month. The employment gains also contribute to a 3.6% decrease in vacancies. Vacancy will fall 60 basis points this year, following an 80-basis-point drop in 2014.
On the capital side, competition for marquee projects near the urban core continues to drive investors. Cap rates for projects with more than 20 units in these submarkets start in the 5% range, but drop if the building has major upside. In Q3, nearly 1,100 units were delivered, all of them in Streeterville, River North or downtown.
There are signs construction is trickling south. The Bronzeville/Hyde Park/South Shore submarket has 600 rentals expected for delivery next year, including the hotly anticipated Vue53 (rendering shown). Read the full report here.