The unemployment rate is down to 7.2%. There is slow growth in the metro area while there appears to be a huge boom in the City of Chicago.
Both local and state governments are burdened by debt and pension obligations from decade of mismanagement and facing tax increases and service cuts.
REIS predicts a modest employment increase this year and a greater increase next year.
The Apartment Real Estate Market
The trend of very low vacancy and strong rent gains have extended through the mid year.
Vacancy rates are still low and not expected to increase significantly in the near future.
Supply and Demand
Construction projects that have increased supply have been absorbed by the demand. With additional supply being added currently and under construction there is no expectation for there to be a negative effect on the overall market.
Rents are continuing to rise faster than average income but not so fast to constitute a spike. Annual rent gains have averaged and effective gain of 1.5% from 2001 to 2013. Rents are expected to continue to increase at a moderate pace through 2018.
There was limited activity in the second quarter of 2014 of qualifying properties (40 units or more) with only 14 transactions. The mean price was $128,165 per unit which is up from a mean price of $113,024 for 2013.
The cap rate for those transactions is 6.0% and is about the same as the prior two quarters this is predicated to increase to 6.3% for the end of the year and rise to 6.6% in 2018 before leveling off.
Rent gains and vacancy are expected to reach its cyclical bottom in 2014. The peak levels of supply and net absorption have already taken place. Chicago has the least constraint on additional development among cities in the U.S. and this keeps excesses in check.
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John Ziemba KW Commercial & Keller Williams Team Realty.
Data Provided by Reis, Inc. as reported August 20, 2014