A sharp increase in the number of new luxury apartments, combined with large numbers of units already on the market, could mean lower rents in downtown Chicago, according to a new report from Appraisal Research Counselors.
The Chicago-based real estate research firm claims that developers will construct 3,830 apartments in downtown Chicago in 2016, compared with the 1,171 rental units being constructed annually between 2005 and 2009. Appraisal Research is predicting that this post-recession surge in new apartment construction and decreasing occupancy rates in existing buildings could slow rent increases and even bring rents down in newer buildings.
According to an analysis of the report by the Chicago Tribune, average rents per square foot for newer, class A apartments fell from $3.05 in the second quarter to $2.98 in the third quarter, while average rents for older, class B apartments dropped from $2.64 per square foot to $2.59 in the same time period. Despite the quarterly decreases, rents for both apartment tiers are up from last year’s prices. Average rents for class A apartments are up 3.1 percent and 4.4 percent for class B units.
The increase in the overall number of rental units is also good news for condominium owners, according to Appraisal Research. The number of new condos added to the market annually was 3,149 before the recession. With only 722 condos currently on the market and continued reluctance on the part of developers to build new units, it’s become a sellers’ market. The average price per square foot is up 26 percent from the lowest point during the housing crash.
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