Was the Q3 downtown apartment market really that slow?

Chicago Real Estate Daily reported yesterday on the state of the downtown apartment market:

After flying high in the first half of the year, the downtown apartment market has lost some altitude in the second.

Leasing activity fell more than expected in the third quarter, dragging down rents and occupancies at downtown buildings, according to a report from Appraisal Research Counselors, a Chicago-based consulting firm. Absorption—a key metric that represents the change in the number of leased apartments—totaled 129 units, down from more than 1,000 in each of the two previous quarters.

Apartment leasing typically slows down in the fall, so the dropoff, while bigger than expected, might not say much about the strength of the downtown market.

Apartment leasing in Chicago has typically slowed in the fall – but fall began on September 22, near the end of the 3rd quarter. Nit-picking aside, we saw an increase in free rent offers and bonus commissions to brokers in September and October, an indication of a softening market.

There’s another possible explanation for the steep drop-off in net apartment absorption: if developers overstated their Q1 and Q2 results they might have needed to understate their Q3 results to make the numbers balance out.

COMMENTS

WORDPRESS: 11
  • aleks 3 years

    12,000 new apartments will be built by the end of 2016. Given the fact that there are apprx. 200,000 people living in the downtown area, the number of new apartments will be difficult to absorb immediately. I’d expect free rent offers to pick up now through 2017, which will probably hurt the “accidental landlords” the most, forcing them to start renting or selling at a loss, which in turn will add additional inventory and keep the prices intact for the next few years.

  • Gerry Cass 3 years

    I work for a firm that develops and leases luxury property in Chicago. Presently, both are offering 2 months free rent, 125% finder pay outs and an additional rolling $1,000 rent credit depending on the time of the month. These leases have yielded net negative returns such that the lender has called to halt leases of the studio and 1BR units in hopes the market recovers after the new year.

    So yes, I think the rental market is that bad. When a $200M luxury property with hotel style services will not lease in the 3rd largest city in America. We are overbuilt and while the numbers still work, this is, as they say, unsustainable.

    Great time to be a renter though!!

  • Gerry Cass 3 years

    WE GOT SMOKED. Chicago is going to have a tough time.

  • Gerry –

    I don’t believe you work for the firm you describe, which would be Related Midwest.

    As of just a few days ago the firm was sending out broker “hot sheets” offering studio and 1-bedroom apartments.

    You strike me as a troll or a competitor hiding behind a fake email address and out to make mischief.

  • Jerry Wexler 3 years

    It is I, Mr. Chicago. Returning from the past to remind Mr. Zekas and everyone else that you still cannot build more apartments than jobs. Now back to my crossword puzzle.

  • No reminder is necessary of a timeless principle that prevails even after your death in 1992.

    What is necessary is a better fix on how job growth in Chicago and people’s changing location and lifestyle preferences will affect the downtown apartment market in the next few years.

  • the urban politician 3 years

    Well, it’s only a matter of time before some of the apartment towers proposed today will end up switching to condos

    • tup,

      I just don’t see any possibility of that happening with any of the new / newer towers.

      The buildings have a far higher value as apartment towers than they do as individual condo units, and there’s no shortage of institutional buyers for them.

  • Luis 3 years

    I am hearing thru the grapevine that some agents are actually quietly boycotting some buildings and management companies.

    The management companies that have been boycotted have been super late on paying out commissions and have clearly made demands about advertising and marketing that clearly makes agents feel that it’s a waste of their time when they can get a private landlord and get paid right away.

    Maybe they should look at their policies.. 2015 will not look good for these management companies since a ton of new units are coming online!!

  • Norm Goldberg 3 years

    Leasing in Chicago has become a preposterous cat and mouse game despite all evidence there are presently more apartments that renters. Why do these brokers collect 125% but when I leased my apartment directly they will not so much as negotiate an extra month free much less the rent? The math does not add up. Unsustainable and dumb.

    I do think technology will catch up and transparency will in the end prevail as it has in the travel space.

    Why should it matter if some apartment brokers boycott? The availability should be clear and available for all to see. That would save everyone time and money.

    There should be an UBER for apartments than matches renters with real time availability and search criteria. When that happens, game over for the 125% collectors (Which is a ridiculous amount of money by the way in terms of work done).

    Mr. Zekas you should invent UBER for apartments!

  • the urban politician 3 years

    Uber for apartments simply can’t work, since that would mean you would pay somebody who would quickly come and show your apartment, yet he probably wouldn’t collect a commission until the unit is leased. It could be several showings before that happens.