Luxury rentals becoming only game downtown
The Home Front
06/06/2012 10:00 PM
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Downtown Chicago is becoming a luxury rental neighborhood as thousands of new apartment units are rising in towers all around the Loop.
Currently eight skyscrapers with a total of 3,260 apartment rental units are under construction downtown with delivery dates in 2012 and 2013, reports Appraisal Research Counselors Ltd. in its latest residential benchmark report on downtown Chicago.
“We expect potentially two more buildings to begin construction in 2012,” noted Ron DeVries, vice president of Appraisal Research.
Rents will be expensive in these class A buildings, which currently are projecting a rate of $2.50 per square foot — equating to a rise of 9.17 percent over rents a year ago. Luxury buildings will ask $2.72 a square foot, or a boost of 9.68 percent over 2011 levels.
This translates to rent of $2,500 to $2,720 a month for a 1,000 square-foot two-bedroom, two-bath apartments downtown. However, several luxury downtown rental buildings are charging even more.
For example, Aqua, a 474-unit high-rise on the New East Side, is quoting average effective rents of $3.02 per square foot. Nine other luxury buildings in the Loop, River North and the Gold Coast are charging between $2.73 and $2.91 a square foot.
“With an overall occupancy level downtown at 95.1 percent, options for renters have clearly narrowed and we expect further rent increases in response to demand,” DeVries said.
Even new investor-owned condo units are joining the rental apartment wave. There were 1,151 condo units rented downtown in the first quarter of 2012, reported Appraisal Research.
Over the past year, 6,089 condo units were leased downtown, according to Multiple Listing Service data. This compares with 5,837 condo units rented in the prior 12-month period — a 4 percent increase.
“The level of unit finished and building amenities — including large-scale fitness centers and social meeting space — in the recently-delivered larger rental towers are providing a compelling alternative to the high-end finishes in condo buildings,” DeVries said.
Meanwhile, the downtown condo market started 2012 with a yawn. Only 113 new units were closed in the first quarter of 2012 and only two buildings had more than 10 developer units sold.
“The tower at 235 Van Buren in the Loop continues to sell steadily each quarter at very consistent pricing which averaged $304 per square foot,” said Gail Lissner, vice president of Appraisal Research.
A bulk sale of 20 condo units also was completed by an investor at 1400 N. Lake Shore Drive at a price of $195 per square foot.
Nine units were closed at 200 N. Dearborn in the first quarter at an average price of $235 a square foot. However, the developer, American Invsco, recently reported a burst of cash sales in the second quarter, including 13 units in one week, and more recently 7 units in one day.
Appraisal Research reports a hefty downtown condo inventory of 2,018 unsold units.
“Overall, we continue to see stronger demand for rental housing and lesser demand for condominiums, as buyers are reacting to the ongoing uncertainty in the market,” DeVries explained.
Prospective condo buyers are concerned about price stability in the housing market, the weakness in the economy and the job market, the difficulty in selling existing residences and financing new acquisitions, Lissner said.
“Valuing the flexibility that rental housing provides in a weak housing market, many people are opting for the easier decision to rent,” Lissner said.
Don DeBat’s weekly real estate column is syndicated by DeBat Media Services. For more home-buying information visit his website at www.dondebat.net.