Chicago is already the third-largest city in the United States, but there are plenty of new commercial real estate developments, as well as redevelopments, taking place that will further enhance the metropolis as a live/work/play environment.
A recent JLL report on Chicago’s real estate future illustrates some of the area’s big plans and parts of the city that will see a boom by 2025. They are mainly west of the downtown core and include Fulton Market, River West, Goose Island and the Clybourn Corridor.
The common theme behind all of these areas is major mixed-use projects that include several aspects of commercial real estate in one package. Fulton Market, for example, is seeing a population explosion. According to JLL, that neighborhood’s number of residents has shot up 14,200 percent since 2000. This is not only promoting multi-family development, but the area is also slated for a restaurant section, an Ace Hotel and offices. Meanwhile, Google already has offices there, which opened late last year.
A lot of what is driving these developments is the Millennial generation and its desire to live near where they work, take public transportation or bike, as opposed to using cars to commute, and have accessible nightlife near their homes.
A recent Integra Realty Resources Chicago multifamily report concurs. The firm says that cap rates are expected to be on the downswing. They are already at 4.8 percent for Class A assets, compared to the national average of 5.3 percent.
Chicago’s multifamily rents, though they are expected to see a slower rise in rates, are still expected to increase, even though there is so much new construction coming online around urban parts of the city. Right now they are at $1,959 compared to a national average of $1,680 for Class A. IRR sees the increase at a steady three percent.
The downside for investors could be an increase in Chicago real estate taxes. The firm predicts them to climb 10 percent to 15 percent over the next three years, with some high-end properties seeing a liability increase of 20 percent.
However, the desire of young professionals to move into the areas surrounding downtown, mixed with the diversity of Chicago’s employment base, is going to continue to make this an attractive place to live and work. As long as the U.S. economy continues its stable trend and interest rates don’t skyrocket, expect this area to continue its success.