The Hole Is Getting Deep in Chicago

While apartment occupancy in the Midwest basically lines up with the national norm, most markets in the region have contained rent cuts at comparatively small levels. Effective monthly rents in June were 1.8 percent off the year-earlier figures across the 10 Midwest metros that MPF Research studies most closely, sliding at about half the pace recorded for the nation as a whole. However, there's an exception to that generally more modest pattern of rent cuts in the Midwest, and it's a big one. Chicago, which is twice the size of any other market in the region, suffered rent reductions of 3.4 percent in same-store properties between mid-2008 and mid-2009.

It's certainly not surprising to see sizable rent backtracking in Chicago's top-tier, newest apartment product. Most of those properties are found inside the Loop, and they face tremendous competition from individually-owned condos offered for lease. However, the metro's steepest rent cuts over the past year actually have occurred in the 1980s-generation properties and the 1990s-era units, with much of that stock not downtown but in the suburbs around O'Hare International Airport and westward into Naperville and other sectors of DuPage County.

While numerous factors have played a part in shaping the struggle seen in Chicago's apartment market recently, one number really stands out. That figure is 200,000, the approximate volume of job loss recorded over the past year, with Chicago now whacking positions at an absolute level more severe than in Detroit, Los Angeles, Phoenix and Atlanta, which ranked as the nation's key job cut centers in the early stages of the recession. (MPF Research's definition of Chicago includes Lake County, sometimes considered a separate metro.)

Recovery in Chicago's apartment market seems likely to be a long process. The metro normally isn't one of the country's top job gain locales even during the best of times, so it's apt to take quite a while for the employment base to get back on an even keel and, in turn, generate the underlying support that will return the apartment market to healthy conditions. But then again, maybe the city gets awarded the 2016 Summer Olympics, and the story changes in a dramatic way. 

Originally published on September 24, 2009, by Greg Willett

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