The Chicago real estate market continues to be active.
As spring turns to summer, the Chicagoland real estate market is heating up. Here are some of the trends and big transactions in Chicago-area real estate for the second quarter of 2015.
Residential Real Estate
On the residential side, it’s definitely a seller’s market in Chicagoland right now. Chicago home sales for the month of May 2015 were up 13% from May 2014. Home inventory continues to fall as well, making for a competitive market for homebuyers.
In the nine-county Chicago area, sales of existing homes increased by 7% from the prior year. The median sale price of $222,000 is the highest since October 2008, with much of the increase seemingly being driven by millennials finally starting to enter the market. At the same time, Chicago ranks only 15 out of 19 among major U.S. metropolitan areas in year-over-year home price gains. Is this a sign of weakness in the Chicago-area economy or simply an indication of sustainable growth (as opposed to a bubble)? That remains to be seen, but the trends are generally pointing in the right direction.
A look at the hot neighborhoods in Chicago provides further evidence that millennials are making their presence felt in the residential market. The neighborhoods with the largest percentage increase in home sales from 2014 to 2015 include Avondale, Lincoln Square, North Center, Logan Square, West Town and Lakeview – all millennial-friendly neighborhoods. Lincoln Park is also booming, with an average price of $3.2 million for a new construction home. Several neighborhoods off the beaten path, such as Morgan Park and Mount Greenwood, are also seeing increases in home sales as investors are snapping up distressed properties.
Beyond the city limits, the suburban rental market is picking up steam as well. Suburban apartment rents and occupancy rates are at their highest levels in nearly a decade. If these rents continue to increase, will suburban renters start buying? This is a trend to keep an eye on in the second half of 2015.
Commercial Real Estate
Downtown Chicago office space continues to be in high demand. The downtown vacancy rate is down to 13%, the lowest since the end of 2008. Rents have risen by more than 4% over the past year. The burgeoning Chicago tech scene is responsible for much of this activity; co-working company WeWork opened a 105,000 square-foot space in River North while online lender Avant (formerly Avant Credit) signed a long-term lease at 222 N. LaSalle St. To no one’s surprise, the West Loop continues to be active. Urban Innovations sold a pair of Greektown office buildings to a Crayton Advisors venture for nearly $30 million.
The sale of the Willis Tower to Blackstone Group officially closed last month. The real estate transfer taxes alone from the $1.3B purchase came out $11.4M. Blackstone says it intends to “reposition” the Willis Tower by expanding the building’s retail and entertainment offerings.
Without question, the biggest deal in Q2 was Blackstone’s $23B acquisition of much of the GE Capital’s portfolio. While national in scope, the deal included several marquee west suburban office buildings in Westchester and Oak Brook. Other national investors also see opportunity in the suburban office market. Lone Star Funds, a Dallas-based private equity firm, has purchased a half-dozen suburban office buildings as part of an 11-property, $433 million deal.
Looking Ahead
While the Chicagoland real estate market trends are nearly all positive, there are some potential clouds on the horizon. Proposed Chicago property tax and Cook County sales tax increases (not to mention the state of Illinois’s budget issues) have some observers wondering how the real estate market will be affected. A new Chicago “cloud tax” on streaming services may also impact the tech industry, which has played a large part in the resurgence of the Chicago real estate market.
While these are serious issues, it’s important to keep things in perspective. Many state and local governments have their own budget problems to sort out (though admittedly, not at the level of Illinois’s issues). Chicago’s effective property tax rate ranked 49th out of the 50 largest cities in each state (according to 2009 U.S. Census data), so while a property tax increase is not exactly welcome, Chicago property tax levels are more than competitive with other major metropolitan areas. Hopefully, the diversity of the Chicago-area economy will shield it from the harshest effects of likely tax increases. To this point, Chicagoland homebuyers and real estate investors have not been deterred, and at least for the short-term, the positive trends should continue.
