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Marcus & Millichap 3Q 2018 Multifamily Research Market Report SHARE
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 Net absorption picks up in urban Chicago. A quickening pace of job growth after a slowdown in 2017 is boding well for household formation and underpinning apartment demand in Chicago. Net absorption picked up considerably during the first half of this year, particularly in urban areas. Despite the increase in demand, supply additions in the core remain elevated, which continued to weigh on vacancy improvement during the past 12 months. Many owners have increased the use of concessions, stalling rent growth to fill open units. Moving forward, supply additions are beginning to shift to the suburbs, allowing room for recovery as units begin to lease.
Construction ramps up in the suburbs. Suburban vacancy remains tight, having held in the low-5 percent band or below since 2010 amid few completions and healthy tenant demand. The low rate has sparked an increase in construction as developers work to supply quality space. Approximately 5,600 apartments are underway in the suburbs, with significant deliveries located in Central Cook County and Far Northwest Chicago Suburbs submarkets. The elevated pace of completions in certain neighborhoods may begin to impact vacancy in those areas this year.
INVESTMENT TRENDS
Transaction velocity slowed in downtown and surrounding neighborhoods during the past four quarters as an influx of supply created concern for some investors. Despite the decline, sales in the area remain above the previous three-year average.
Properties along the lakefront remain popular, and buyers are targeting assets in Lakeview and Uptown Chicago. Here, properties changed hands with average first-year returns in the mid-5 percent band. Southern lakefront properties, particularly in Kenwood and the South Shore, were also highly sought after as cap rates averaged in the mid-8 percent area.
Buyers from out-of-state markets are increasingly targeting Chicago’s apartment assets. Transaction velocity among out-of-state buyers jumped 18 percent during the past 12 months. California, New York and Florida buyers were particularly active.