I recently read a Crain?s Chicago Real Estate article about how the downtown apartment market is improving. The good news about this is that there is finally good news! Chicago?s rental market has been put through the ringer this season and no more bad news is great news.
The downtown apartment market is doing marginally better, but there?s still plenty of room for improvement. As of last week, some of Chicago?s more reputable rental high rises were still offering major incentives and concessions. Larger apartment management companies like Planned Property, Lincoln Property Residential, Near North Properties, Habitat Company, and Village Green are all still offering attractive perks to fill properties before the October 1st deadline. Renters can enjoy free parking, enormous rent reductions (5-15%) and up to two months free rent.
And it?s not just the renters who are benefiting. Some management companies are offering apartment locator services 150% commission splits (1 1/2 month?s rent) versus the traditional one month?s rent. Other companies wine and dine leasing agencies with parties, trip giveaways, hefty agent-centric bonuses and increasing flexibility during lease negotiations.
Most companies who offer these types of incentives are filling vacancies faster than those that don?t. However, it?s still affecting their bottom line with respect to how much of their operational costs are being allocated towards incentives to renters and rental agencies.
The numbers can be deceiving when the rates are high. For example, a one-bedroom apartment, without parking, goes for $1,600 in Streeterville. Rather than lowering the rent to attract tenants, companies will offer a free parking space or 2 months free rent on a 13 month lease, making the bottom line look beefier than it may actually be.
False Sense of Improvement?
Downtown apartment management companies have been struggling with vacancies since 2001 and none of the incentives mentioned above are new ideas. I do think that while the numbers are improving slightly, management companies have become more creative in reporting their financials. These incentives are boosting numbers, giving everyone a somewhat false sense of hope that things are getting better, when in reality, they?re not.
The way I see it, at the end of the day, vacancies are being filled and that?s a good thing. That means the plan is working. Although management companies are throwing in everything but the kitchen sink (no pun intended), they are filling vacancies and gaining better-than-expected rates given the current glut from the ?shadow market? and less than desirable unemployment rates.