Marcus & Millichap anticipates lower vacancies, higher rents in Chicago

by Joe Zekas on 1/18/12

Marcus & Millichap’s 2012 National Apartment Report (PDF, registration required) just became available online. The report summarizes information about apartment markets in 44 large US markets.

The outlook for Chicago:

Completions will increase, but tenant demand will grow at a faster pace, reducing vacancy in Chicago for the third consecutive year in 2012.

Occupancy and rents will strengthen throughout this year as newly employed residents move into rental housing, but the progress of developments through the supply pipeline will limit additional declines in vacancy beyond 2012.

Approximately 15,000 rentals were planned in the metro at the end of last year, an amount that would expand rental stock 3.4 percent if all of the projects come online. Planned rentals in the Loop would expand stock by 15 percent, while the Gold Coast faces a potential 9 percent increase in rental stock.

City locations will remain primary targets for developers, due to the expected migration to urban areas by young residents entering the work force.

Marcus & Millichap expects asking rents in the Chicago market to increase 4% and effective rents to increase 4.8%. The vacancy rate is expected to decline by 50 basis points, to 4.2%, following a 90-basis point drop last year.

Despite these favorable conditions, Chicago’s ranked as only the 17th most attractive on the National Apartment Index (NAI). What’s the NAI? According to Marcus & Millichap Real Estate Investment Services:

The NAI ranks 44 major apartment markets based upon a series of 12-month, forward-looking economic and supply and demand variables. Markets are ranked based on their cumulative weighted-average scores for various indicators, including forecast employment growth, vacancy, construction, housing affordability and rents. Weighing both the forecasts and incremental change over the next year, the index is designed to indicate relative supply and demand conditions at the market level.

Share:
  • Facebook
  • Google Buzz
  • Digg
  • LinkedIn
  • StumbleUpon
  • del.icio.us
  • Google Bookmarks
  • Live
  • Posterous
  • Reddit
  • Technorati
  • Tumblr
  • email

No related posts.

{ 14 comments… read them below or add one }

KarmaPolice January 18, 2012 at 8:29 AM

“City locations will remain primary targets for developers, due to the expected migration to urban areas by young residents entering the work force.”

Not to mention, retiring Baby Boomers who no longer want to live in suburbia.

That will be the greatest demographic shift the housing market has seen in the last 60 years.

Reply

Joe Zekas January 18, 2012 at 9:59 AM

KarmaPolice,

Sigh. Been hearing about the mythical-empty-nesters-moviing-to-the-city for over 30 years now.

Reply

Pedro January 18, 2012 at 10:09 AM

Nothing mythical about empty nesters moving to the City. I know a lot that have and more that intend to.

Reply

Joe Zekas January 18, 2012 at 10:20 AM

Pedro,

New screen name? What gives?

Of course there are empty nesters moving to the city. We all know some of them.

What’s proved mythical so far is the notion that they’ll have much impact on the overall market.

Reply

KarmaPolice January 18, 2012 at 12:15 PM

Of course you have been hearing that for the last 30 years. For the last 30 years we had relatively stable fuel prices and a younger population. Coupled with the fact that younger professionals are having smaller families, urban housing is far more attractive.

I realize that change is difficult for some, but real estates agents, public transit officials, urban planners, and corporations had better embrace it.

Reply

Joe Zekas January 18, 2012 at 1:05 PM

KarmaPolice,

Real estate agents, public transit officials, urban planners, etc. confront the reality of the strong majority preference for suburban / exurban living. They don’t need the kind of wishful thinking about our cities that wannabe planners have indulged in since the 50s.

Reply

KarmaPolice January 18, 2012 at 4:08 PM

Of course they DID, but not any longer.

The days of driving until you can afford are over.

Reply

Ben L January 18, 2012 at 4:14 PM

Joe, I think you’re missing KarmaPolice’s point here. I think you’re correct that over the past several decades most people, given the choice of any and all housing options, would prefer to have a single family home with a yard in a suburb. What KarmaPolice highlights is that prospective suburbanites are being forced more and more frequently to ask themselves what price they are willing to pay for their suburban ideal. When energy has been cheap, many people can easily afford to heat and cool large homes that are only accessible by automobile. When energy is expensive, it acts as a bigger counterweight to dispersal preferences.

Reply

Joe Zekas January 18, 2012 at 5:03 PM

Ben L,

I don’t believe I’ve missed his point.

People will react to high energy prices in a variety of ways. Surveys, and more important behavior, still indicate that people’s “dispersal preferences” favor dispersal.

Jobs are already widely dispersed. Suburbanites who work in the city might opt for car-pooling or the train or simply trading down to a smaller, more fuel-efficient vehicle long before they pull their kids from decent schools to move them into the city.

I’m going to duck the rest of this discussion – had it many times before, and find it profoundly uninteresting as it’s typically conducted here.

Reply

Ben L January 18, 2012 at 6:29 PM

Aha…a much more complete answer. Thank you very much! I agree that we will see every one of those behaviors you named if/when energy prices continue to rise. Of course, job dispersal isn’t some grand irreversible trend either; I would expect that, in addition to what you suggested, central cities and transit-rich locations will capture more residents *and* jobs.

I’m curious whether your distaste for repeating this discussion means that YoChicago will not be posting on this issue, or whether you will just refrain from commenting. I guess only time will tell, although of course I hope that the site continues to add good data-rich posts such as this one.

Reply

Joe Zekas January 18, 2012 at 7:14 PM

Ben L,

We’ll continue to post on the issue – and, even more useful, we’ll continue to link the wide variety of articles and viewpoints on the topic that we find around the web on our Chicago Real Estate News page.

Reply

KarmaPolice January 19, 2012 at 7:45 AM

Thank you Ben. And Mr. Zekas you have missed the point.

You are applying old metrics to a new reality.

You say:

“Jobs are already widely dispersed. Suburbanites who work in the city might opt for car-pooling or the train or simply trading down to a smaller, more fuel-efficient vehicle long before they pull their kids from decent schools to move them into the city.”

Jobs are coalescing around urban cores, that is quite evident. The systematic closures of suburban campuses is accelerating.

Furthermore, you mention taking the train. The suburbs that I am referring too are not supported by any level of usable mass transit.

Secondly, if you read my response, I mentioned Baby Boomers. Let’s hope their children are not still living in their homes and still going to high school.

BTW, I love your site. It’s an invaluable resource for those individuals moving to Chicago.

Thank you!

Reply

SheridanB January 19, 2012 at 2:42 PM

I disagree that jobs are coalescing around urban cores, unless you mean multiple cores within a single urban area, which is generally the case in the US. I’m not sure that the traditional “cores” will capture jobs in the future, though they might concentrate further in new centers. It’s partially due to municipal governance structure and lack of regional planning and partially due to corporate location decisions, which has historically been to locate near decision makers places of residence, but that, of course, can and may (and will) change.

I do, though, generally disagree with Joe on the future growth of the exurbs – there will always be people who want to live on the fringes in a rural or semi-rural setting or own acreage, but there may be fewer in the future. The other crimp I see, long term, is stronger zoning for protection of productive farmland (and no, don’t kid me about ‘urban farms’ or ‘urban agriculture’) if there is large population growth in the future (both from the prospect of development encroachment and from needing the land for feeding increased populations). We certainly could be more efficient with land use, but that’s another discussion, frankly.

Reply

KarmaPolice January 20, 2012 at 9:03 AM

The New America.

“Many Americans, builders have learned, are fed up with pricey gas and lengthy commutes”

http://blogs.wsj.com/developments/2012/01/18/the-new-american-home-continues-shrinking/?mod=WSJBlog

Reply

Leave a Comment

Previous Post:

Next Post: