Suburban apartment rents hit new high
Suburban apartment rents continued their climb at the end of 2012, with landlords poised for another good year in 2013.
The median net suburban rent rose to $1.19 a square foot in the fourth quarter, up from $1.18 in the third quarter and $1.14 a year ago, a 4.2 percent annual increase, according to Appraisal Research Counselors, a Chicago-based consulting firm.
Rents have risen more than 12 percent since bottoming out in mid-2009, the product of a major shift in the housing market away from owning and in favor of renting. Demand for apartments typically depends on job growth, but that hasn't been the case this time around.
“It's a healthy market in spite of the modest job numbers we've got,” said Appraisal Research Vice-President Ron DeVries, who expects rents to rise another 3 percent to 4 percent in 2013.
The suburban occupancy rate was 94.9 percent in the fourth quarter, down from 95.1 percent in the third but up from 93.8 percent a year earlier.
Betting that the market will remain strong, developers have proposed dozens of new apartment projects in the suburbs. Ten developments comprising about 2,300 units are under way already.
Developers are especially busy in Evanston, where three buildings encompassing 469 units are under construction and a joint venture including Chicago-based Fifield Cos. recently received the city's blessing for a $148-million project with 368 apartments. Another 2,051 units are in the works on the North Shore, including developments in Deerfield, Northbrook and Glenview.
Demand is especially strong on the North Shore, where rents rose 7.8 percent last year, more than any other suburban area, according to Appraisal Research. Whether supply outpaces demand a few years from now will depend on how many of the projects secure financing.
“If there's a market to watch, it's really the North Shore market given the high concentration of deals in a relatively small area,” Mr. DeVries said.
The deals include a 139-unit apartment building in downtown Glenview proposed by Trammell Crow Co. The building at 1815 Glenview Road would be just a few blocks from a Metra stop, one reason the developer wants to build there.
“There is a lack of supply of Class A product and the majority of it is not transit-oriented,” said John Carlson, senior associate in Trammell Crow's Oak Brook office. “We're not concerned about supply in the pipeline given that the barriers to entry are extremely high.”
Mr. DeVries is also watching the local home ownership rate for signs that would-be renters are starting to buy again. The Chicago-area's home ownership rate — the number of owner-occupied housing units here dividing by the total number of housing units — peaked at 71.2 percent in 2006 but has fallen since then and now stands at 67.5 percent, according to the U.S. Census Bureau.
Every 1 percentage point drop in the rate adds about 30,000 renters to the Chicago market. But local home sales have rebounded and prices are stabilizing, and Mr. DeVries doesn't expect the rate to go much lower.
“I think we've kind of hit bottom,” he said at presentation downtown last week.
A pickup in the job market would help spur demand, as more 20-somethings who are living with their parents get jobs and move into apartments, or renters who were doubling to save money part ways and get their own places. But local hiring has been anemic since the recession, with the Chicago-area economy adding 36,000 jobs in 2012 after adding 44,800 in 2011, according to Appraisal Research, citing numbers from Moody's Analytics. The forecast for 2013: 25,000.
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