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10-Sep-23 – Chicago apartment dwellers likely will see hefty rent increases in early 2024, according to a new national forecast. For the first time in 20 years, Chicago’s apartment rent growth over the past three quarters is the highest of major rental markets in the nation, reports CoStar Risk Analytics. Chicago’s annual rent increases are up 3.6 percent – three times higher than the national average of 1.2 percent in 2023. This is the highest rent growth in the Windy City since the average spiked to 7.9 percent in the first quarter of 2022, said CoStar. Boston, with a 3.4 percent rent increase this year is second in the nation, followed by Philadelphia with a 2.6 percent increase in 2023. “With only 13,000 new units in the under-construction pipeline – an inventory expansion of only 2.3 percent – Chicago rents are likely to continue to rise,” the CoStar forecast predicted. The national average for inventory growth via new construction is 5.2 percent, while the top 20 urban rental markets surveyed nationwide are expanding at a 6.8 percent clip. Landlords bullish on Chicago rental market Another Chicagoland rental survey by Essex Realty Group polled 22,000 apartment owners and found average spring 2023 rent increases of 3.4 percent on renewals, and a hefty 6.4 percent hike on new leases. Landlords reported an average vacancy rate just above 1 percent, and low turnover. “Owners are forecasting a turnover rate of 20 percent in 2023, far lower than prior years,” the Essex Realty survey noted. Landlords also are bullish on the future of the Chicago rental apartment market. Some 61 percent of owners say they anticipate acquiring more Chicago properties over the next three to five years, while only 14 percent said they anticipate selling their buildings, Essex Realty reported. “With limited new inventory competition, three-star properties – which dominate Chicago’s apartment landscape – can maintain their rent growth ascendancy established almost a year ago,” the CoStar report predicted. The CoStar multifamily rent growth forecast calls for three-star properties to dominate the market at least through the second quarter of 2024. In the CoStar survey, apartments are rated on a one-to-five-point scale. Although deconversion of aging and financially-squeezed condominium buildings into refurbished rental apartments has been a hot market over the past few years, experts say this trend has slowed because developers are having trouble obtaining acquisition financing. Mortgage rates have doubled over the past year, and interest charges on investment capital are floating between 10 and 13 percent.
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