Posts Tagged ‘Class A landlords’

Downtown Chicago Rental Apartments Thriving

Monday, August 31st, 2009

Downtown Chicago apartment buildings – especially Class A properties – are seeing a resurgence in occupancy and rental rates as residents apprehensive about the condominium market choose to rent rather than buy.  The average effective rent of downtown apartment buildings climbed to $2.17 PSF in the second quarter, a 2.4 percent increase over the first quarter, according to a report by Appraisal Research Counselors, a real estate consulting firm.  During the same time frame, average Class A occupancy rose to 93.4 percent, as compared with 90.9 percent in the first quarter and 91.6 percent a year ago.chicagoskyline1

The statistics would be even better if there weren’t so many new downtown apartment buildings.  More than 2,098 new units have been built downtown since 2008.  Add to that the shadow rental market – condominium owners who rent their units when they cannot sell.  Many potential buyers are renting for the time being because they are concerned about falling property values and the possibility that they will be unable to obtain a mortgage in a tight credit market.

These numbers show the inherent strength of Chicago’s CBD rental apartment market — proof that downtowns continue to thrive because of the number of highly educated knowledge workers who want to live in the city.  As a result, places like River North and the Loop remain highly sought after locations for businesses looking to recruit talent.

Suburban Office Vacancies Rise

Tuesday, July 15th, 2008

According to a recent Crain’s Chicago Business article, suburban office vacancy rates shot up to 13.1 percent during the second quarter of 2008.  That is the highest level in more than two years. According to the commercial real estate services firm, Transwestern Commercial Real Estate, the vacancy rate is at its highest level since the first quarter of 2006, when it rose to 13.7 percent.  There’s no doubt that demand for suburban office space is in lockstep with job growth or loss; we’re not seeing any job growth in the suburbs right now.

Class A landlords are more likely to accept lower rent deals right now than was true in the last year, but this can be risky.  This has the effect of also reducing the building’s value, because this is a function of the in-place income stream.  Sometimes, it is better to pass on a low rent deal and simply “assume” accepting a higher rent to protect the building’s value.

The sales market has been robust over the past several years, so protecting value has been a priority.  With credit now being largely unavailable, building owners are no longer in the sale market because buyers are unwilling or unable to pay top dollar.  Because we don’t know when the office market will stabilize and since selling isn’t viable at present, landlords may take that lower rent to boost occupancy.

A respectable number of transactions will be completed this year, but only because there is so much low-cost sublease space available.  Additionally, some industries are likely to make positive contributions to the suburban office scene.  Companies providing goods or services to hospitals, physician practices and the senior-housing market are experiencing growth, as are data-center operations and some engineering firms, especially those working with energy production or conservation.