The apartment market in Chicago saw one of its most active rental seasons in years, with landlords and property managers needing to adapt to new regulations seemingly every week as the Coronavirus pandemic reshaped many aspects of everyday life. Renters are spending more time in their apartments than ever, forcing them to reevaluate the functionality of the spaces they rent, which resulted in more renters moving this season.
As Chicago’s most trusted ILS, Domu is privy to big data pertaining to renter’s behavior, as well as pricing trends for Chicago apartments with granular detail down to the neighborhood level. For our Autumn Market Update we decided to include some of the trends that we are seeing through the first three full quarters of 2020, compared to the same time period in previous years to adjust for the pronounced seasonality of the market.
Here is a selection of the most newsworthy insights:
A 6-year Streak of Rent Growth Comes to an End
Until this summer, Chicago experienced an upward trend of the citywide average rent price that started in 2013, with a compound annual growth rate (CAGR) of 1.43 percent. However, at the end of Q3 2020, for the first time in six years, we are seeing the citywide average rent drop 3 percent to $1,702, below 2017 levels.
The biggest driver of the rent drop is an oversupply of apartments in Chicago during 2020. This drove many landlords, particularly independent mom-and-pop operations, to quickly slash their prices to avoid long-term vacancies. Layer this reaction on top of economic uncertainty, and Chicago renters had more options than they've seen in years. And it gave those who were suffering financial strain a much-needed respite.
It’s important to highlight that this analysis is based on advertised rents, and not on the net effective rent, which is becoming an increasingly popular strategy used by property managers to show renters their prorated monthly savings. This means that after all the discounts and concessions that are starting to flood the market, the prices are even lower than what is shown in this report.
Biggest Rent Drops Around the Loop and Near Universities
Averages can hide a lot of detail, but if we take a deep dive into the data, the story varies markedly neighborhood by neighborhood.
For example, Lakeshore East saw one of the biggest declines in rents with 13 percent drop year-over-year, while other areas in and around the Loop also had rent drops ranging between 4 percent and 7 percent.
Defying expectations, some Chicago neighborhoods on the northside including Rogers Park, Andersonville and Lincoln Square reported rent growth of about 5 percent, with strong demand from young Chicagoans betting on the 24/7 lifestyle of these areas, or just because they were looking for apartments with more space, compared to what they can get closer to the Loop.
The near southside neighborhood of Bronzeville is certainly an outlier in the 2020 rental season, experiencing an unprecedented increase in demand, with renters flocking to apartments listed on Domu in that area, paired with a rent growth of 19 percent. Similarly, rents in the vibrant neighborhood of Pilsen also saw a growth of 4 percent contrary to the citywide trends.
While the rent growth trends we saw in some neighborhoods can be explained by increased demand, in some cases, the change in the average rent price is the result of an oversupply of luxury and higher-end units skewing the average higher.
Biggest Supply of Chicago Apartments in Years
The coronavirus pandemic resulted in many apartments that hadn’t been on the market for years suddenly becoming vacant, as renters were faced with the challenge of having to turn their apartments into their office, or because they wanted to get access to a balcony or patio to get access to fresh air during lockdown, or in some cases, because the renter was impacted by economic hardship following the unprecedented number of layoffs and furloughs.
Whatever the reason behind renters moving, the 2020 season saw an unparalleled number of apartments listed on Domu, as well as historically high demand from renters. However, in this utterly unusual apartment shuffle, a few neighborhoods saw bigger increases in supply than others.
Taking the citywide average of about 20 percent as a benchmark, neighborhoods on the northside including Andersonville, Rogers Park, Edgewater and Lincoln Square, saw a smaller increase in inventory compared to the overall city average, which suggests that renters in these neighborhoods were slightly more likely to renew their leases. While renters looking for apartments in the West Loop, Pilsen, Old Town and Lakeview had more options than they had seen in years.
An Impending Eviction Wave?
Evictions have been top of mind among both renters and landlords in 2020. The main questions around this topic include whether or not evictions will be allowed to take place during a public health crisis, and what options are available to landlords when their tenants are unable to pay their rent -- either partially or in its entirety. Thousands of renters across the city have been unable to pay rent and they may be facing eviction when the Illinois eviction moratorium is lifted.
Domu does not track specific information about evictions from either renters or landlords, however our platform provides general guidelines about this topic, and based on the level of interest of these pages, we estimate that this is an issue that may be affecting more than twenty-fold more renters and landlords this year, than what we have seen in previous years.
Over-inventory of Luxury, Some Larger Units Seeing Rent Growth
Looking specifically at the change in rent by unit type for the top neighborhoods in Chicago, the Loop is struggling with price drops across all unit sizes, but particularly among studios; as this area was disproportionately affected by social unrest and by the aftermath caused by struggling retailers.
Meanwhile, larger units, particularly the small inventory of 4+ bedroom units for rent, have retained their prices in many neighborhoods, and even reported rent growth in some cases, driven by affluent renters looking for more space.
Studios, which make up a sizeable portion of Chicago’s apartment stock, are seeing a mixed performance, with neighborhoods like River North showing a marked increase in average rent price, but in this case, the change is more driven by an oversupply of luxury units, than the response of increased demand. While studios in popular areas like the West Loop, Humboldt Park, Lincoln Park and Logan Square, continue to be as popular as ever with young renters, especially those who may see the risk of the coronavirus as less of a factor in their decision making process.
While this information may be useful for landlords that are getting ready to list an apartment, we must stress that under the current market conditions, pricing is paramount to ensure the success of a listing, and the best way of determining a competitive rent price is by looking at comparable units. Domu offers detailed statistics on our website with interquartile average pricings by neighborhood and by type of units for all neighborhoods where there is enough inventory, for more details on this visit our neighborhoods page.
Renters Waiting to See What Happens
National trends point to a surge in temporary moves as renters are waiting out to see what happens with the coronavirus crisis and the economy. Domu users are no different, with short-term rentals seeing increased demand as some Chicago renters are in a holding pattern.
Who’s looking at temporary housing solutions in 2020? Some renters are relocating to suburbs and less crowded areas to better keep with social distancing guidelines, and student renters may be moving back home with their parents until campuses fully open up to normal capacity. Some renters are making the most of the arrival of remote working and virtual classes by seeking out more space in their rental homes.
Delays Expected Ahead - What Can Landlords Do?
Renters are taking longer to find an apartment. In some cases they may be starting the process as much as 38 percent earlier than usual, as the uncertainty instilled by the current environment has forced many renters to be more scrupulous about their apartments selection process.
What can landlords do to weather these unique market conditions? For a start, landlords would be wise to play to their rental property’s strengths when they advertise their listings. Gone are the days where the balcony or back porch is a mere afterthought! Balconies and other open-air amenity spaces are more popular than ever, so a landlord preparing to list their apartment or condo in Chicago should do their level best to make these spaces look attractive to prospective renters by sweeping away any excess leaves or patching up pesky cracks in concrete.
The kitchen is also a focal point among renters during the pandemic -- so much so that refrigerators were out of stock at many big box appliance stores in the third quarter of 2020. Renters are making the most of quarantine life with endeavors like baking so landlords would be well advised to address any kitchen shortcomings head on. A gleaming kitchen with newer appliances can help attract more tenants to rental listings.