The Manhattanization of Chicago likely will accelerate in the second half of 2006 as a record number of new high-rise condominium projects moves from the drawing board to construction sites, appraisal experts say.
“The biggest story for 2006 is the amount of new-construction condominium inventory being announced this year,” said Gail Lissner, vice president of Appraisal Research Counselors and co-author of the Downtown Chicago Residential Benchmark Report. “If this pace continues as expected, the number of new projects starting marketing programs during 2006 will exceed any year in the recent past.”
The Appraisal Research report said the downtown Chicago new-development market continues to exhibit strength despite lingering talk of a “housing bubble,” a softening in the resale market and reports of a slowing in other major real estate markets in the United States. A record 8,162 new and converted residential units were purchased downtown in 2005, up from 6,298 units in 2004.
“New-construction condominium development continues to dominate the new-development marketplace, with very little adaptive-reuse loft development or townhome development taking place in 2006,” Lissner said.
The South Loop continues to command huge market share, accounting for the largest proportion of new-home sales during the first quarter of 2006. Some 44 percent of all new development sales in the first three months of 2006 were in the South Loop, up from 36 percent in the last quarter of 2005, Appraisal Research said.
Another hot downtown neighborhood is south Streeterville, where developers continue to aggressively pursue new development. Streeterville high-rise projects coming online in 2006 include 535 N. St. Clair, by Sutherland Pearsall Development, The St. Clair at CityFront Plaza, by Centrum Properties, and Urban R2’s 606 North Fairbanks.
“Strong demand also can be seen along the Michigan Avenue corridor, stretching from Oak Street on the north to Roosevelt Road on the south,” Lissner said. “We are seeing strong demand for residential units either on Michigan Avenue, or within one or two blocks of Michigan Avenue. These properties are commanding some of the highest prices in the market.”
There are several new ultra-luxury condominium developments underway on Michigan Avenue or in very close proximity, including 900 North Michigan, priced at $850 a square foot, and The Ritz-Carlton Residences, on the 600 block of North Michigan Avenue, with prices averaging nearly $1,100 a square foot for 86 new-construction condos.
Appraisal Research noted that new-condominium prices continued to rise in the first quarter of 2006.
“Newly announced developments with condos priced below $300 per square foot were non-existent in the market during the first quarter of 2006,” Lissner said.
“All of the new high-rise condo projects that started marketing programs during the first quarter of 2006 were priced around $340 per square foot because construction costs and land costs are both on the rise,” Lissner said.
Who is buying all those condos? According to Ron DeVries, vice president of Appraisal Research, a diverse range of buyers is fueling demand. These buyers include:
Investors. The individual investor continues to exert influence on buying patterns in the market, with many buyers wanting to diversify their portfolios.
Second-home buyers. More and more second-home purchasers desire a part-time home in the city and are flooding the downtown market. “Whether they are ‘snow birds’ or suburbanites, out-of-towners or ‘splitters’ (people who split their time between residences), this is a growing segment of the buyers active in the market,” Lissner said. “We are also seeing an increase in the number of out-of-town buyers in particular projects, as this seems to be an emerging market.”
Empty-nesters. Downsizing from large houses in the suburbs, empty-nesters continue to account for a sizable portion of the marketplace.
First-time buyers. DeVries said the first-time buyer is “a mainstay of the market,” although this is becoming an increasingly difficult segment for developers to serve due to increasing land and construction costs.
Move-up buyers. They continue to be active in the market, trading older, smaller units for newer, more luxurious ones.
Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc., www.dondebat.net.