Suburban Chicago apartment rents soar as buildings fill up

The downtown apartment market is hot, but the suburban market is hotter.At least it was in the first quarter, when the median net suburban rent rose to a record $1.32 per square foot, up 7 percent from a year earlier, according to Appraisal Research Counselors, a Chicago-based consulting firm. It was the biggest year-over-year rent increase in the suburbs since 2006.Suburban landlords have gained pricing power as their buildings have filled up. The suburban apartment occupancy rate rose to 96.3 percent in the first quarter, up from 95.4 percent a year earlier and the highest level since 2007, according to Appraisal Research.“There was plenty of momentum” in the first quarter, said Appraisal Research Vice President Ron DeVries.

Occupancies and rents have climbed steadily over the past five years as people have turned away from home ownership and, more recently, as the local job market has picked up. DeVries predicts suburban rents will rise another 4 percent to 5 percent over the next year.

“We’re seeing really strong demand across our entire portfolio,” said Darren Sloniger, president and chief investment officer of Marquette Cos., a Naperville-based developer that oversees about 4,500 apartments in the suburbs.

Many investors, including Marquette, are buying properties, fixing them up and then hiking rents, betting tenants will be willing to pay more for an improved product. Marquette recently acquired Brookdale on the Park, a 252-unit complex in Naperville, and has begun updating the property’s apartments with granite countertops, stainless-steel appliances and other changes. The developer also plans improvements to the property’s clubhouse and swimming pool.

“We’re already getting good rent bumps there,” Sloniger said. “It’s proving out.”

 

BIGGER INCREASE THAN DOWNTOWN

The suburban multifamily market has been a slow, steady performer over the past several years, but it hasn’t kept pace with the frothy downtown market, which has posted stronger rent growth over the past five years. In the first quarter, however, the suburbs’ 7 percent rent increase topped a 5.6 percent gain for the city, according to Appraisal Research. The 96.3 percent suburban occupancy rate in the quarter also exceeded the 94.3 percent downtown rate.

Downtown is still a hotter market for developers, which are on pace to complete more than 7,600 apartments this year and next. Apartment construction also has picked up in the suburbs, mainly in places where rents are high enough to justify new development.

In Evanston, for example, Chicago developer John O’Donnell recently broke ground on a 112-unit project, while Marquette plans a 200-unit development in downtown Lisle. In all, 2,168 apartments are under construction in the suburbs, according to Appraisal Research.

Competition from new buildings could put pressure on existing landlords in some spots, but the projects are spread out enough geographically that the supply isn’t a widespread concern. The new apartments represent about 2.4 percent of the 92,000 units covered in the Appraisal Research survey.

“They’ll start to feel it, but we’re not talking about tons of units,” DeVries said. “Right now, I don’t think we’re seeing any downside to that added supply.”

Yet rising rents could spur more construction by allowing developers to plug higher revenue projections into their financial forecasts for new buildings, DeVries said. More projects that didn’t make financial sense a year or two ago are financially feasible today. “With this growth that we’re seeing, some of these deals are starting to pencil out that didn’t quite pencil out before,” he said.

Source: Chicago Real Estate Daily Alby Gallun May 18th, 2015


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