After enduring a brutal 2020, downtown apartment landlords are relieved that the worst is over. They'll feel even better when downtown businesses tell their employees to come back to the office.
The speed and scope of the downtown market's recovery will depend largely on how quickly the city's office towers fill back up—and how many workers return. More people working in the office means more people hunting for apartments. Landlords are counting on that happening.
"We need to see that, and we will see that," says Ann Reckelhoff, associate director of development at Marquette, a Naperville developer that owns three downtown apartment buildings.
The downtown apartment market already is poised to bounce back from its worst slump in decades, dragged down by the coronavirus pandemic and recession. As people started working remotely and restaurants and bars shut down, living downtown lost its appeal. The riots and looting over the summer didn't help, either.
Many downtown renters moved out, some to Chicago neighborhoods, some to the suburbs and still others out of the state. The bigger problem: Very few people moved in to replace them. Downtown occupancies and rents plunged.
Now, landlords are wondering who will come back, and when. Relocations—people moving to Chicago for a new job or transfer—have always been a major source of demand for downtown apartments, a source that dried up last year. A lot of companies stopped hiring or cut jobs. If a downtown-based company hired someone, the new employee worked remotely. Many new hires stayed put.
New research from the Federal Reserve Bank of Cleveland shows how the coronavirus severely disrupted migration patterns in Chicago and other U.S. cities. People moved out of urban neighborhoods at a higher rate than normal, but the flow of people moving in dropped in much bigger numbers.
Urban neighborhoods in Chicago experienced an increase in the net outflow of 43,000 residents from April through September compared with the average for the same period over the prior three years, according to the study. But the drop in move-ins accounted for the bulk of the change, 29,000 residents, versus 14,000 people moving out.
Migratory patterns could work in the apartment market's favor this year. With vaccinations on the rise and the end of the pandemic on the horizon, many companies are getting ready to reopen their downtown offices in the coming months. The flow of workers into downtown could help apartment owners fill their buildings.
Out-of-towners are just trickling in now, say landlords and brokers. But leasing has picked up the past few months, partly because downtown landlords have been offering such great deals to attract renters to their buildings.
"People are trying to take advantage while they still can," says Amanda Letchinger Olker, founder and managing broker at RL Accelerated, a Chicago-based apartment brokerage.
Leasing volumes also have increased at Downtown Apartment Co., another Chicago brokerage. Apartment move-ins rose 22 percent in January compared with a year earlier, 30 percent in February and 55 percent so far in March, says Ben Creamer, the firm's principal and managing broker.
Marquette is starting the year strong, too: After dipping as low as 86 percent last year, the occupancy rate at the Mason, a 263-unit building it owns in the Fulton Market District, is back in the mid-90 percent range, Reckelhoff says. The developer has a lot riding on the recovery, with nearly 600 apartments under construction on the western edge of Fulton Market and another 210 in the works.
While the direction of the downtown apartment market will depend heavily on hiring and relocations, other variables will make a difference as well. After the pandemic descended on Chicago, many 20-something professionals fled the city and moved back in with their parents. Now, tired of living at home, some are starting to move back, either downtown or to a Chicago neighborhood, brokers say.
Demand this year will also rely on the movement of older professionals who left downtown for an apartment building in the suburbs or a smaller property in a neighborhood. One class of renter that's likely gone for good are younger couples or families who ditched their downtown apartment for a house in the suburbs.
Empty-nesters will play a role as well. COVID-19 disrupted the plans of many empty-nesters to move from the suburbs to a downtown apartment. David Hendrickson, a mortgage banker who works downtown, postponed his move last year.
"No restaurants, no bars, no movie theaters—why would I go downtown?" says Hendrickson, 60. "It's basically signing up to sit in an apartment and do nothing else."
But Hendrickson and his wife plan to make the move this year. They sold their house in Barrington in February and are living in their second home in Lake Geneva for now. They plan to get an apartment in Streeterville this fall.
"I want to live where I can walk to work," he says. "It's very appealing."
The downtown market needs a lot more people like Hendrickson to come back. More importantly, landlords need companies to give their employees another reason to move downtown—by calling them into the office.
One big wild card: what downtown offices will look like post-pandemic. If downtown businesses shrink their offices and allow more employees to permanently work from home some or all of the time, demand for downtown housing could suffer.
"If there's one thing that would slow down the recovery, it would be a slow reopening or opening at much lower levels," says Ron DeVries, senior managing director in the Chicago office of Integra Realty Resources, an appraisal and consulting firm. "If they have 10 to 20 percent of the workforce working remotely, that's a significant impact on housing downtown."
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Will Chicago's downtown apartment market come back? - Crain's Chicago Business
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