Chicago Market Conditions: 2023 vs. 2022

May 05, 2023

With the spring leasing season upon us, many owners appear to have shifted their focus from the issues of a year ago.  2022’s post-covid recovery discussions have been replaced with concerns regarding interest rates, inflation, regional bank exposure and Chicago’s mayoral election.

While there is ongoing concern about market volatility, there are also very positive indicators for Chicago’s multifamily market.  First and foremost is the strong rent growth this spring.  Essex recently completed a survey of owners of more than 22,000 apartment units across the Chicago area.  72% of owners reported seeing between 3%-6% increases in their current lease renewals.  12% of owners are attaining 7% or higher increase, and only 15% of owners reported seeing 0%-3% increases.  For new leases, 78% of respondents are experiencing 5% or more increases in lease trade outs, with 32% reporting they are achieving over 9%.

This also marks the first time in 10 years that rent growth in Chicago has exceeded the national average, which now sits at 2.2%, according to the CoStar Chicago Market Report.  Similarly, according to Real Page, Chicago ranks 9th in the country in year over year rent growth, at 5.5%.  With new supply in Chicago during 2023 projected to be 20% less than the 10-year average, there are no signs of rental demand slowing down.

Another bright spot is the expectation that the Federal Reserve’s efforts to combat inflation with interest rate increases appears to be tapering.  Just this week, the Fed raised their rate by another 0.25 bps in a decision that was widely expected by the market, while also signaling that the current tightening cycle is near the end.  One of the largest concerns with the recent debt market has been volatility, with the UST often moving 25 basis points or more per week, making it challenging to underwrite acquisitions or refinances.  In turn, this led to fewer transactions during Q1.  With April marking the first time since July 2022 in which the 10-year treasury moved less than 20 basis points in a month, we expect the market to adjust to this new normal and for transaction velocity to increase during the second half of 2023.

One of the most under-publicized metrics is Chicago’s corporate expansion.  Despite some well-known companies leaving the city, Chicago hit a record of 448 businesses relocating or expanding into the city during 2022.  This topped 2021’s record of 441 businesses.  Surprisingly, this was higher than Dallas’ 426 and Houston’s 255 businesses and marked the 10th straight year that Chicago led the nation in bringing new companies to the city.

Another metric is population growth and net migration.  A recent Bloomberg article stated that Chicago now has more people living downtown than it did before the pandemic.  According to the Chicago Loop Alliance, population in the Loop has grown 10% since 2020 and is expected to grow another 17% by 2028.  Although there has been much written regarding population decline, the vast majority of those out migrations have been from the city’s south and west sides.

As we start seeing the blooming of spring, it is encouraging to see positive growth in the apartment market.  Please reach out to your Essex broker for information we can provide to assist you navigate through these changing market conditions.  And let’s enjoy the summer!

Tagged in this post: Brian Kochendorfer