Choose an edition: Wash DC | Chicago

A Tale of Two Cities: Chicago’s Rental Apartment Market

  • November 11, 2011

by Don DeBat

image
South Shore apartment building

Chicago’s booming downtown luxury rental apartment market gets all the headlines with its sky-high rents and thousands of new units rising around the Loop.

However, the city’s neighborhood rental apartment market—the area north and south of the Central Business District—is “a tale of two cities,” according to a new analysis by Appraisal Research Counselors Ltd.

“The high-demand apartments are found in North Side neighborhoods that are served by the CTA Brown Line, Blue Line and Red Line which provide an easy commute to jobs downtown,” said analyst James K. Kutill, Director of Neighborhood Properties for Appraisal Research.

There is great demand among apartment investors to buy both vintage and newer apartment buildings in stable, high-employment North Side neighborhoods, noted Appraisal Research.

Kutill is forecasting spring 2012 rent increases of 6 percent to 7 percent on the North Side along the Brown and Red lines, and in Wicker Park and Logan Square along the Blue Line, where vacancies currently are very low.

This also explains why apartment investment companies are on an apartment-buying binge on the North Side. Chicago-based Newcastle Limited and Reside Living, its management arm, have purchased and renovated more than 2,000 vintage apartment units in the lakefront neighborhoods of Lincoln Park, Belmont Harbor, Lakeview and Rogers Park over the past few years.

However, the rental apartment market on Chicago’s South and West sides is another story, Kutill told 32 members of Southside Builders Association at a recently luncheon presentation in Greek Town.

The rental apartment market on the South and West sides mostly is driven by Uncle Sam’s Section 8 rental rent-voucher system, where moderate-income tenants pay rent based on their income and the federal government makes up the difference, he said.

“South Side rents are 50 percent less than the North Side,” Kutill said. “Vacancies of habitable units in some neighborhoods, such as South Shore, are running 6 percent to 7 percent, and as high as 15 percent overall,” Kutill said.

Apartments near South Side elevated lines can be purchased for as little as $3,000 to $4,000 per unit, and investors include major non-profit entities looking for larger buildings.

“Some of the available properties are foreclosed buildings stripped to the bricks,” Kutill said. “It will cost $25,000 to $30,000 to rehab each unit.”

Looking to the future, Appraisal Research sees the downtown apartment market becoming over-built. “A rental apartment bubble has developed in Chicago because more people now want to rent than buy,” Kutill said.

Apartment rents in new luxury downtown high-rises jumped 12 percent in 2010 to $2.68 per square foot. “Luxury rentals downtown are 95 percent occupied and doing very well, and several new buildings are in the pipeline,” noted Gail Lissner, vice president of Appraisal Research.


image

Don DeBat’s weekly real estate column is syndicated by DeBat Media Services. For more home-buying information visit his website at: www.dondebat.net.

This article originally published at http://chicago.urbanturf.com/articles/article/a_tale_of_two_cities_chicagos_rental_apartment_market/4561

1 Comment

  1. untitledreality said at 6:13 pm on Tuesday November 15, 2011:

    “The rental apartment market on the South and West sides mostly is driven by Uncle Sam’s Section 8 rental rent-voucher system”

    There you have the problem. Keep flooding these neighborhoods with riff raff living off the government and they will never see vacancies drop… or wealthier residents move in… or widespread reinvestment in the neighborhood. Section 8 is a disease.

Ted Guarnero

Baird & Warner

312-810-6693

Serving:

Gold Coast

Printers Row & Dearborn Park

Streeterville

Choose an edition: Wash DC | Chicago