Chicago Apartment Rents Hit New High As Construction Pipeline Dries Up
Rents on Chicago's shiniest apartment buildings are soaring to new heights.
The average rent for a downtown Class-A apartment topped $3,100 for the first time, a sign of Chicago renters’ appetite for premium product amid oversupply in other metros across the country.
Rents for top-tier apartments were up 3% year-over-year, according to a new report from Luxury Living. Streeterville netted the highest rents at $3,454, trailed closely by Gold Coast/Old Town at $3,445 and River North at $3,426.
“What we are seeing in Chicago is exactly what you would expect,” said Aaron Galvin, Luxury Living's founder and designated managing broker. “A Midwest market that is seeing measured, sustainable rent growth due to supply and demand drivers.”
The Midwestern multifamily story is a marked difference from the oversupply most notable in the Sun Belt. In Austin, about 40,000 apartment units, or about 14% of the city’s existing inventory, are under construction and rent growth has declined 5% year-over-year, Bisnow previously reported.
In Chicago, Galvin said he believes measured rent growth between 3% and 5% per year is sustainable, but developers expecting 10% to 15% year-over-year rent increases can get themselves in a “bit of trouble.”
“Rents don't grow to the sky,” Galvin said. “There is going to be a moment where, especially on some of these smaller unit sizes … income qualification to get the quality of tenant that developers and owners want becomes a limiting factor.”
Young professionals in their late 20s or early 30s with high-paying jobs make up a large chunk of the renter profile for these Class-A buildings, Galvin said. The minimum income threshold for most of these apartments is $75K, though the average income in the newer luxury buildings Luxury Living rents is about $120K, he said.
About 4,000 Class-A multifamily units have come online each year since 2016 on average, according to the report. But looking ahead to 2025 and 2026, the pipeline for new construction is drying up.
Developers are slated to deliver fewer than 500 units in 2025 and about 1,000 units in 2026, well below historical averages, according to Luxury Living. Two years of minimal supply coupled with consistent demand will likely continue to drive rents up, Galvin said, and potentially spur developers to build.
“The goal is that the capital markets start to see Chicago as a viable investment again and we start to have investment back into Chicago and are able to deliver brand-new luxury apartments in the way that we have, starting probably in 2027,” Galvin said.
A lack of upcoming supply may also cause occupancy numbers to tick up to new highs by the end of next year, Galvin said. Class-A occupancy is at 94%, but the report projects occupancy to approach 96% by the end of 2025.
But landlords will have to decide between increasing occupancy levels and driving rent growth, Galvin said.
“When you get to 95%, oftentimes rents get pushed beyond what is historically achievable,” Galvin said. “That's why the occupancy stays in that 95% range, unless certain properties determine that they would rather have occupancy over rent growth.”
