HEARTLAND SNAPSHOT, DECEMBER 2007

Chicago Multifamily Market

The Chicago multifamily sector has experienced little significant activity, as of late. The slowdown in suburban condominium conversions has helped potential investors be more competitive with regard to purchasing communities. This has also kept many outside investors from entering the market, and most activity is coming from developers established in the market.

With the rate of foreclosures going up in the single-family homes market, as well as new restrictions on mortgages, there has been a significant jump in occupancies in multifamily properties. Vacancy rates have been declining steadily in the past 6 to 12 months, with some suburban markets reporting vacancies as low as 2.5 percent. The overall rate is closer to 4.5 percent. Downtown still seems to be hovering in the 3 to 4 percent range.

The market is experiencing positive rent growth. Rents in urban Chicago range from $2.10 to $2.60 per foot for Class A, and $1.60 to $2 per square foot for Class B. Suburban Chicago is $1.20 to $1.50 per square foot for Class A, and $0.80 to $1.10 per square foot for Class B.

The new developments that are being constructed right now in the downtown markets are still geared towards higher-end, young professionals. Suburban developments are also targeting this group with Class A projects with strong amenities.

The South Loop in downtown Chicago continues to grow rapidly. It offers great proximity to the central business district, as well as museums and parks. It has also been a little more affordable, although that is changing quickly. The northwest suburban corridor to Rockford will be a prominent multifamily market for some time. The prevalence of corporate headquarters and distributions hubs ensures that this area will have excellent long-term potential for sustained growth.

To maintain this sort of growth, employment and population growth are the keys. Chicago has been one of the few Midwest cities to experience both. Growth has been modest, but at least it has been positive. Being the financial center of the Midwest and a major national distribution hub, Chicago should continue to thrive. The city could be dealt a major economic boost by landing the Olympics in 2016.

— Ralph DePasquale is a senior investment advisor at the Chicago office of Hendricks & Partners.

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