The Chicago Rental Market…The Good, The Bad, and Advice for Landlords

July 30, 2009

Rental

Did you see fewer moving vans this summer in Chicago. It's one sign of the tough rental market.

Did you see fewer moving vans this summer in Chicago. It's one sign of the tough rental market.

Let?s face it, it’s a scary time to be a landlord. The apartment rental market is facing difficulties like never before. For the first time in six years apartment rents are down nationwide. Fueling the fire are investor-owned properties (usually condos or town homes), which has expanded the rental supply by roughly 50 percent. Whether landlords own or manage 200+ units or 2 units, everyone is feeling the pinch. Here is where I see problems and opportunities in this market.

The Current Rental Situation in Chicago

  1. The rental market and the job market run parallel to each other. Unemployment is up, hiring and recruiting have slowed, and people with jobs are scared that they are going to get laid off.
  2. Consumer confidence is very low. People are more money-conscious now then they have been in the past. It is expensive to move and people are taking that into consideration when their renewal letter arrives.
  3. There is still an over-abundance of inventory on the market. As mentioned earlier, the “shadow market” has expanded rental stock by over 50 percent.

The Bad News?

In my experience, most of my rental clients are either people relocating to Chicago or recent graduates. I see fewer people in both categories this season. Fewer college graduates are getting jobs right out of college and the job market has tightened with respect to new hires and moving allowances. There are still college graduates getting jobs right out of college and people are still relocating to Chicago, just fewer than in years past, which is creating a more competitive marketplace?especially since there is more inventory available. So, the number of “new” renters has slimmed down and existing renters are staying put, downsizing, moving in with mom and dad, or moving in with more roommates to save money. Of course, downsizing and consolidating living space by living with more roommates creates movement in the marketplace, however, it is just not enough to stimulate market prices positively. Further, this mentality contributes to fewer livable addresses and more apartment inventory, which drives the price of rentals down across the board. Once the job market improves, people will be back in the market looking for new places to live.

The Good News?

Yes, the apartment rental market is facing difficulties like never before. However, despite these recent challenges, a large majority of renters are still looking for a new place to live this year and more than half are planning to pay the same or more in rent. Here is why?

  1. People still want to try out living in new neighborhoods or cities.
  2. Renters want more for their money and are willing to negotiate.
  3. There are a lot of renters out there looking for an upgrade and more amenities.
  4. There are tons of rental incentives being offered to renters. It?s hard to pass up on a good bargain.
  5. Although unemployment has reached over 11 percent in the Chicago metropolitan area, there are companies that are still hiring.
  6. Some landlords have increased rents not knowing that their tenant?s income has decreased. Or, they don?t care. This decreases a renewal rate which means movement in the market place.

My Advice

  1. Be sure to stay in tune with news related to employment and the shadow market.
  2. If you have leases expiring, be sure to send renewal letters out 60-90 days out.
  3. Study what rents are going for in the neighborhood before sending your renewal letters. It’s never been easier to do with sites like rentometer.com, craigslist.com, and chicagoreader.com.
  4. If you think your unit(s) is underpriced, consider moderate increases (2-5%).
  5. When tenants decide not to renew, maximize exposure by taking quality photos of the apartment when it is clean and use them in advertisements.
  6. Keep the building exterior and common areas as clean as possible while marketing the property for rent. It makes a huge difference.
  7. Price your property in alignment with the market. Nothing costs more than an empty unit.
Thanks to John Benson for sharing today’s photo via the Creative Common’s License.
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About John McGeown

A Chicago native and long time North Side resident, John comes to Jameson with over five years experience in Chicago real estate: sales, leasing, and property management in Chicago. With a strong, diverse background in residential leasing, John has developed a keen sense for matching quality tenants with his large network of property owners. Leadership, ambition, and creativity drive him forward, and he strives to consistently deliver outstanding service. Prior to entering the real estate industry, he spent four years in the U.S. Navy as an Operations Specialist stationed in San Diego, California. When not working, John enjoys playing the drums with his band, King Sparrow. Visit John on the web.

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