After years of dismal news for the apartment rental business here, the clouds finally may be parting. Some landlords are seeing anything from a patch of blue to bright sunshine.
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But it’s been rough seas for Chicago-area building owners and managers since what one observer termed “a perfect storm” struck early in the decade, sending the apartment rental market reeling.
That perfect storm, as it was described by Judy Roettig of the Chicagoland Apartment Association, was the confluence of job loss, the technology bust and low interest rates.
The first two factors cut into the traditional source of renters — graduates with first jobs, according to Roettig, executive director of the Schiller Park-based rental industry organization. And low mortgage interest rates made home buying more attractive than renting for many, Roettig and others in the apartment business said.
The result has been a boon to renters. “Rents have been flat. Over the past three or four years, in order to stimulate rentals, the market has been offering concessions,” Roettig said. When you take those concessions into account, “rents have actually declined,” she added.
Now the skies may be clearing just enough to see “glimmers of hope,” Roettig said.
“This is more anecdotal than statistical,” she emphasized, but “what we’re seeing is a move toward the rental market stabilizing from the standpoint that you don’t have across-the-board concessions. Occupancies have climbed into low 90s [percent]. We’re seeing a lot of retraining in how to sell apartments,” Roettig said, promoting “the value of rental living as a lifestyle.”
Mark B. Weiss, of Mark B. Weiss Real Estate Brokerage in Chicago, is a bit sunnier. And he dates that break in the clouds from last June, “the first post-college month where grads actually had jobs coming out of college,” he said. The rental market is driven by jobs, he emphasized, and “we’re seeing many transferees coming to Chicago.”
“We’re seeing strong activity in our rental department,” which consists of about 100 units in Chicago and Evanston, he said. “That doesn’t mean we’re bumping up rents, but we’re seeing absorption” of vacant apartments.
In Evanston, there’s about a 5 percent vacancy rate among his apartments and about the same in Chicago, he said –“a normal turnover versus upwards of 10 to 20 percent [vacancy rate] two years ago.”
In the downtown luxury market, the change has been more pronounced, according to Robin Loewenberg Berger, executive vice president of NNP Residential & Development, which is opening its Shoreham rental high-rise this week in the Lakeshore East development east of Michigan Avenue and south of the Chicago River. The 46-story, 549-unit building is a joint venture of NNP, which manages several thousand units in Chicago, and Magellan Development Group Ltd.
The market “has turned a corner. Things have really improved,” Berger said. “We’ve increased traffic; we have good numbers on our buildings.”
“I’ve already pre-leased 5 percent of the apartments [at the Shoreham] sight unseen,” she said. “We have a wait list of 300 people who want to see the apartments,” whose rents start at $1,032 for a studio and range to $2,558 for a two-bedroom two-bath unit.
“Grand Plaza, which we developed and managed, is about 95 percent leased and we are having great traffic,” Berger said, referring to the 764-unit complex at State Street and Grand Avenue. Rents there range from $1,293 for a studio to three-bedroom duplexes that start at $5,412.
And, what may be the strongest sign that the rental overcast is clearing, is “we’ve eliminated all concessions at both properties. There are no concessions at Shoreham. No kind of special. That’s key for the landlords, to be able to eliminate concessions.” First move-ins are April 15.
For the area as a whole, vacancies are not projected to drop much this year. Marcus & Millichap Real Estate Brokerage Co. sees overall vacancies dropping from 7.2 percent in 2004 to 6.9 percent this year, and it cites “anemic” job growth of 1.2 percent as a prime reason. Rents should rise only about 2 percent in 2005, the firm said, to an average $972.
Another factor is a still-affordable housing market, according to the Marcus & Millichap’s national apartment report.
That matters to property managers, who have to compete with lower cost for-sale housing. Especially in the suburbs, new housing aimed at first-time buyers is sometimes offering mortgages that are lower than rents.
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Wayne Faulkner is editor of Real Estate. You can contact him at [email protected] or write to him at the baiduhai, 435 N. Michigan Ave., Chicago, IL 60611.