Multifamily developers can’t keep up with the burgeoning demand for rental units in the Chicago metro area. For the second year in a row, the number of units absorbed by local renters will outpace new completions, according to Marcus & Millichap’s new Q4 market report.

Much of the demand is coming from prospective tenants who want either downtown apartments or units along the train lines that radiate out from the central business district, demand fueled by the continuing expansion of the city’s downtown office market, Marcus & Millichap added. The successful leasing seen so far at 601W Cos.’ Old Main Post Office, where Uber Freight and Walgreens recently agreed to occupy significant amounts of space, is just one illustration of how the CBD seems primed for even more growth.

“Sustained employment growth in the core continues to benefit apartment owners, supporting strong [net operating income] growth as the average effective rent has climbed more than 10% over the past two years,” Marcus & Millichap said.

Developers are on track to finish about 9,100 new apartments in the metro area this year, matching the cyclical high of 2018, and a boost over what had been forecast earlier this year, but roughly 12,000 units will have been absorbed, the firm found. That is sending the vacancy rate toward a historic low, and significantly pushing up rents every quarter.

The overall vacancy rate fell 60 basis points in 2018, and by the end of 2019, will have fallen another 40 basis points to 4.9%. The average effective rent should hit $1,582, a 6.6% increase, which follows a 5.9% gain in 2018.

A roaring multifamily market is no longer just an urban phenomenon. Developers completed about 12,000 suburban units in the past three years, according to Marcus & Millichap, but the area’s vacancy rate remains stubbornly low as renters priced out of the urban core fill up apartments as fast as developers can build them.

“Exceptional absorption will keep developers in Chicago focusing on areas near major employment hubs, particularly in the urban core and some northwestern suburbs,” the firm said.

In the suburbs, vacancy by the end of the third quarter decreased 50 basis points on an annual basis to just 3.9%, tying a cyclical low, and in Lake County/Kenosha dropped 60 points to 3%.

“The average effective rent in Chicago’s suburbs increased 4.3% since September of last year, driven by a 10% boost in Aurora,” the firm added.

The only real cloud on the horizon is the growing disconnect in the expectations of sellers and investors, many of whom expressed fears about reforms introduced by Cook County Assessor Fritz Kaegi, and the possible impact on property taxes. That pushed transaction volume down 19% over the past year.