My good friend Kevin Rocio of @Properties spoke last week on the state of the Chicago
Apartment Market and shared some eye-opening facts that I thought I
would pass along…
Apartment buildings are once again expected to be
the best-performing commercial sector. For the second year in a row, the
absorption of 170,000 existing units is far outpacing the completion of
38,000 new units. In 2010 the spread was
even wider. As a result, vacancies have continued to drop with Chicago
being the 8th market with the largest drop while rental rates continue
to rise.
The Co-Star forecast is for Chicago multifamily
vacancies to drop to 4.6% in 2012 from 5.3% in 2011. The rental rate, at
a median of $1,066 per unit, is expected to increase 3.5% this year and
3.8% in 2013.
Foreclosures are not the major cause for the drop
in vacancies as many suspect. Instead, it is the increase in the
formations of new households which are expected to total 7 million over
the next four years.
With regards to pricing, it’s important to
understand that cap rates are expected to 4% by year end for
non-distressed assets in the Chicago A-markets (Streeterville to the
Central Business District to River North to LakeView). The 3-month
trailing cap rate in these markets at the end of Jan, 2012 was 5.5%.
Just 12-months ago, the average hovered around 10.25%. That’s the
biggest drop in in the last 40 years. (see attached graph)
What this is going to do, is force investor to look
at the suburban markets because this is where the value play is
expected to remain, at least for the near-term.
(sources: Co-Star & Real Estate Investment Journal)
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