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Market Dynamics provides an examination of key influences on apartment industry performance. You’ll value the perspectives and insights from the MPF Research team, including Greg Willett, an industry expert widely known for his knowledge and expertise in the field. View Market Dynamics online or Sign Up for e-mail delivery as new issues are posted.

Downtown Chicago Makes Strides
November 10, 2009
by Greg Willett

Just under a fifth of metro Chicago's 650,000 or so apartment units are found in the urban core, basically inside the Loop and in adjacent neighborhoods. For most of the past couple of years, occupancy in this mega submarket has been running below the average for suburban locales, reflecting that many renters have opted for the multitude of individually-owned condos offered for lease in the downtown area. Traditional apartments in the urban core, however, suddenly turned in a much improved performance during 2009's 3rd quarter.

MPF Research's analysis shows demand for an impressive total of more than 4,000 apartments in the Intown Chicago area during the July-September time frame. Recent completions moving through initial lease-up accounted for a significant block of this demand, but absorption also occurred across all product age sectors, reflecting some backfilling of previous vacancies in the existing stock.

Demand during 3rd quarter was large enough to boost occupancy in Chicago's urban core by more than 2 points. The rate, then, rose to 93.1 percent, moving ahead of the metro norm of 92.2 percent.

Rent cuts helped fuel Intown Chicago's recent demand, but the submarket's pricing shifts actually don't look much different than the numbers seen for the metro as a whole. Effective rents that take into account the impact of concessions fell by 0.8 percent in the urban core during 3rd quarter, while greater Chicagoland pricing dropped by a similar 0.6 percent. Intown's 4.1 percent annual loss in pricing power compared to a decline of 3.1 percent for the metro as a whole.

Looking ahead, metro Chicago's apartment demand seems likely to remain concentrated in the urban core during the near term, but the area will have to post some pretty incredible absorption numbers to sustain occupancy above the rates seen in the suburbs. That challenge reflects that Intown Chicago has a sizable block of future supply that will need to be digested. Of the 3,261 apartments that MPF Research showed still under construction across the metro going into 2009's 4th quarter, all but 242 of those units are in urban core properties.

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