Chicago 2023 apartment market outlook

Chicago 2023 apartment market outlook

Rent growth for Chicago apartments roared back after dipping in the first quarter of 2022. But rising interest rates and geopolitical uncertainty could slow the sector’s performance over the next year. Victor Calanog, Head of Commercial Real Estate Economics at Moody’s Analytics, shares his analysis.

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Chicago apartment rents up, vacancies tight

Rent growth for apartments in Chicago roared back in the second and third quarters of 2022 after dipping slightly in the first. Effective rents rose 2.4% in the third quarter, a slight pullback relative to the second quarter’s 3.8%, but a healthy quarterly figure nonetheless, according to Moody’s Analytics CRE.

Vacancies now sit at 4.7%, a level of tightness not seen in five years. For perspective, Chicago is now 60 basis points below pre-pandemic vacancies of 5.3%, recorded at the end of 2019.

Didn’t the apartment sector get the memo that economic forecasts have pulled back throughout the year, with rising interest rates and ongoing geopolitical uncertainty? There are indeed some headwinds. Year-over-year effective rent growth — though still in the double digits — came in at 10.3% through the third quarter. That is down from what may be a cyclical peak of 17.3% year-over-year from the second quarter. 

Top rent growth areas: Rogers Park, Uptown, Oak Park 

Some submarkets remain strong performers: The Rogers Park/Uptown submarket posted the highest year-over-year effective rent growth in the third quarter, growing by 15.4%. The Oak Park and City West submarkets actually recorded accelerations in year-over-year effective rent growth in the third quarter. Oak Park went from 9.7% to 10.7%, and City West went from 10.1% to 12.1%.

Expect a slowdown in 2023

Headwinds are expected to slow the Chicago apartment sector’s performance in the next 12 to 18 months, but Moody’s Analytics is still relatively bullish about its long-term prospects compared with other commercial property types. Annual effective rent growth is expected to end 2022 at above 7%. That’s down relative to last year’s record-breaking 14.5%, but pretty healthy nonetheless. Rent growth may be halved in 2023 to the low to mid 3s, but given today’s slowing economy, that may be a good result, if realized.

By the editorial team at Story by J.P. Morgan

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