2018 Rental Market Outlook


Dear Clients and Associates,

I recently attended the Chicagoland Apartment Association 2018 rental market preview breakfast. There was a lot of information disseminated, and I think it’s important to share some of the key takeaways.

THE BIG PICTURE – The U.S. Economy Today – James Glassman, Head Economist, JP Morgan Chase

  • Despite much pessimism in the news, when looking at the data, the US economy seems to be back on its feet since the crash.
  • Overall, real estate pricing is back to where it was at the peak. New demand has been created from baby boomer’s kids. There is still lot of pent-up demand from 20- to 30-year-olds because many postponed major life decisions during the recovery.
  • The Fed took bold steps to battle the financial crisis by purchasing 4 trillion dollars in treasury bonds and some mortgage backed securities in an unprecedented attempt to boost economic growth. With the economy healthier, and mixed opinions on how the bond purchases actually helped, the Fed is preparing to gradually start trimming their holdings this year, ultimately offloading roughly $2 trillion.
  • Banks are more heavily regulated since the market crash and bound to a liquidity coverage ratio (LCR). This requires them to hold sufficient levels of high-quality liquid assets against expected net liquid outflows over a thirty-day stress period, to further promote short-term resilience. 
  • Once the central bank gets these treasury bonds and mortgage backed securities off of their books, we can expect moderately higher interest rates. It is estimated that this will take at least another four years.
  • Chicago has modest, but positive employment growth, tracking 15,000+ new jobs last year, and 3% total growth since 2013. 



  • There is an oversupply of rental product and the glut of downtown apartments has rippled into the neighborhoods. Competition now is stronger than ever and renters have a lot to choose from. There is still activity, but no sense of urgency. The only way to compete is with pricing
  • If we strip out buildings that are still in lease-up, and only look at buildings that have been stabilized for at least 1 year, average rent growth is down by -1.86%.  Expect rents to decline in 2018. 
  • Given that Chicago’s rental cycle is seasonal, Q4 2017 and Q1 2018 should be the lowest occupancy and pricing we’ve seen in a while.
  • Developers are betting on urbanization, with Chicago’s population density outpacing other major metros. Building development pipeline is big – 1500 units were added in 2017 and 3500 are scheduled to deliver in 2018. 
  • Occupancy in stabilized buildings is at 93%.  Expect occupancy to decline in 2018. 
  • Absorption is at a record pace and growing. 



  • 22 to 32-year-old buyers are purchasing mainly in the $300K-$500K range, which as a developer is difficult to finance and build new, because construction costs are up 30% from seven years ago, and labor costs have also gone up. 
  • The majority of condo sale transactions are re-sales because new construction condos are almost non-existent, barring smaller (2-6 unit) and a few mid-rise buildings.  
  • Pricing will continue to trend modestly upward as there is still strong pent-up demand for mid-priced, new units.
  • Expect to see more de-conversions of modest condo buildings.



John McGeown


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