Chicago’s newest apartments are leasing fast, even as a healthy helping of high-end new-builds gives renters a lot to choose from. The true test of demand will come in the next two years, when, by the end of 2016 downtown could add as many as 8,700 new apartments. There are a total of about 28,000 today. This is according to projections by Appraisal Research Counselors (ARC), defining “downtown” as the area from Cermak Avenue to North Avenue and Lake Michigan to Ashland Avenue. You don’t have to dig deep for examples of rapid leasing in today’s market.
OneEleven Wacker’s 500 units are more than 50 percent leased six weeks after opening and four months after the start of pre-leasing. One hundred and fifty leases were signed prior to opening and another 120 have been inked since. “It’s an unprecedented rate for us,” says Related Midwest president Curt Bailey, the building’s developer. “We had an 18 month projection for lease-up, so we’re far ahead.“ It took about five months—also pretty speedy—for Related to reach the halfway mark in the leasing of the same-sized 500 Lake Shore Drive.
In both buildings, studios rent for close to $2,000 a month; one-beds for $2,500 and up; and two-beds for at least $4,000. OneEleven reserves a set of high-floor three-beds priced at more than $7,500. Demand has been evenly spread across unit types, says Bailey, although studios are completely leased since they were the first of the building’s staged move-ins.
Bailey thinks the story not being told is that highly-amenitized luxury rentals didn’t exist as a type until very recently. And so, while rents are up 34 percent in Class A buildings downtown since 2009, according to ARC, it has much to do with a segment of newcomers to the rental world willing to pay top dollar. People across every social strata are renting. Many who would’ve looked to own in years past are making it their preference. “There’s also relatively well-priced talent that corporations are tapping into,” says Bailey. Motorola, Sara Lee, and Archer Daniels Midland all have new presences downtown, and Walgreens is mulling a move of its headquarters to the Old Main Post Office.
A confluence of events in the downtown market is driving steady renter demand despite numerous building openings in the past two years. Rapid growth in downtown population and in high-paying jobs is intersecting with a lack of new condominium construction. If we’re headed for oversupply down the pipeline, it isn’t here yet. According to ARC, at the close of the second quarter 2014 downtown apartment occupancy was almost 95 percent, up 2.5 percent from the third quarter 2013. For Class A buildings, occupancy is higher still: 95.1 percent.
AMLI River North, which opened in July 2013, hit the 95 percent leased mark (effectively full) in July 2014, 14 months after the start of pre-leasing; 73 East Lake is 60 percent occupied five months into its leasing; K2 at Kinzie Station leased up its 400 units at a healthy clip; and Optima Chicago Center and Hubbard Place are also ahead of schedule.
Analysts warn that tracking absorption rates is difficult because pre-leasing dates for buildings are sometimes hard to pin down, and because absorption tends to be faster at the start of leasing and in spring and summer months. And short-term rental deals can skew numbers. Film crews, for instance, are always looking for blocks of apartments and new buildings have the vacancy. Also, K2’s aggressive referral program offered a $750 rent credit to residents who coaxed friends or family members to sign a lease. That’s a particularly good enticement, but not the only one in town. As the market floods with luxury new-builds, look for more of this.