3 Factors That Will Keep Chicago Real Estate Strong Through 2025

JLL chief economist Ryan Severino
Bisnow Archive/Chuck Sudo
Jll Chief Economist Ryan Severino

Chicago is poised to look just as strong in 2025 as it does in 2017.

JLL chief economist Ryan Severino, who was in town for JLL's Chicago 2025 event last week, said recent and long-term historic trends indicate Chicago's real estate market could remain healthy for years to come. Severino's presentation focused on three particular factors that will continue the momentum.

1. A Diverse Workforce

Downtown Chicago Central Business District
Chuck Sudo/Bisnow

Chicago's economic growth rate, 2% average over the past five to seven years, has been better than New York or Washington, DC, but trailing San Francisco and San Jose. This is good for the third-largest metropolitan economy in the country. Severino said Chicago has done a good job handling shifts in the economy to the downtown core, and that will take on a more important role as economic activity continues.

And the workforce is diverse, with a significant focus on the educated, creative class who are drawn to Chicago for its universities, nightlife and restaurants. As the economy evolves, it will be the thinkers who will move the economy forward, Severino said.

2. More Degreed Professionals Are Flocking To Chicago

Daley Plaza, Chicago
Chuck Sudo/Bisnow

The trend of companies relocating to downtown has had a positive effect on the number of degreed professionals moving to Chicago. Severino said 34% of workers 25 and older hold an advanced degree. That's a higher percentage than the national, state, Los Angeles and California averages. Capitalizing on this workforce is why companies are moving downtown, and that will become more important as Baby Boomers retire and these companies will be able to choose from an abundance of younger workers.

3. Interest Rate Hikes Are Not Killers

Real estate professionals tend to get worried whenever the Fed raises interest rates. Severino said that is much ado about nothing. He studied 60 years of cumulative returns of the S&P 500 when the Fed raised interest rates and found that, with the exception of two instances in the 1970s, the market went up. Severino said the reason is simple: When the Fed decides to raise interest rates, it believes the economy is already in a good position to succeed.

Severino said interest rate hikes don't always have a direct correlation to real estate cap rates. He believes cap rates are more closely tied to NOI growth and investor confidence. Rational investors are willing to pay more for rising cash flows and are willing to downplay the impact of higher interest rates because of the risk premium embedded in any deals.

Continue reading this story with a free account

Log in or register
Sign up for more articles like this
Subscribe to Bisnow's Chicago Newsletters
Related Stories

New Opportunity Zones May Help Finish California Projects, Not Start Them

Gaming & Leisure Stays Bullish On Bally's Casino Project Despite Delays

ISIF Commits €100M To IPUT's €500M Office Development Pipeline

Brookfield, CPP Complete $5.2B REIT Buyout, Pick Up U.S. Logistics Assets

TPG, ACORE Raise Billions For Opportunistic CRE Funds

Newmark Cuts Earnings Outlook Despite Record Third Quarter

Battered Mortgage REIT Suspends Dividend To Preserve Cash

Morningstar Releases New Details On Over 350K SF In Q3 Office Leases

Blackstone Mortgage Trust Reports Unexpected Q3 Net Loss

'Distress Is Finally Trading': Investors Chasing Big Discounts On Boston Office

New Bears Stadium Proposal Floated For Bridgeport

Tyko Capital Sets New Record For Florida's Largest Construction Loan