Rent Watch: Are Hi-Rise Apartment Rates About to Decline (More) in Downtown Chicago?

Occupancy is sliding as rentals hit the lowest numbers since 2009, the first big dip in four years. Are we seeing the early trickles of a renter's market?

Since its March launch, 290 units have been leased in Fifield's upscale 496-unit K2 Tower development on Kinzie Street, well over the 175 projected. But with the swell of supply, could rent concessions be the next step for downtown buildings?

It's the numbers that make landlords cringe and apartment hunters go hmmmm. The downtown development boom has been very, very good, a feather in the city's cap as new construction, the promise of more jobs, and the need for high-end apartment housing made a pretty intersection. 

But there's a new chapter in the queue. According to Crain's, a report from Chicago-based Appraisal Research Counselors says demand is taking a dive. Occupancy is at 92.6 percent, a decrease from 95.3 percent just a year ago. And the absorption rate could set off some tiny alarm bells: overall occupancy is at 900 units, numbers not seen since 2005, according to the report. 

It's a measurement of demand, one that could give landlords the jitters.

Appraisal Research vice president Ron DeVries told Crain's the market has peaked. The amount of units coming online versus growth is "out of balance," he said, sniffing "turbulence" in the air. Consider Class A buildings. Rates are currently down 1.9 percent from 2012 offers and now fetch $2.53 per square foot. 

Chicago renters are hit paying 21 percent more at this price point, so don't expect them to argue as these rates retreat. Plus, Devries had another optimistic note for would-be city dwellers: he expects rents to tumble an additional 3 percent.

If rents are peaking on the luxe end, that could put pressure on landlords to entice would-be renters with concessions, the kind that make you want to kiss a two-year lease. There's plenty of competition, always an excellent climate.  

And yet, developers are still cranking, with 4,000 more apartments in the pipeline readying for a 2015 debut. On the horizon, though, is a dark horse to watch: the condo market is definitely in play. If the numbers suggest owning downtown is the better option over renting, that could steal away some prospects. 


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