Chicago's multifamily real estate is stronger in the suburbs. As one of the best property management companies in Schaumburg, we at Nex-Gen Real Estate can help you understand the changing multifamily real estate market.
The multifamily real estate market in Chicago is increasingly shifting towards the suburbs. This trend is driven by various factors, including the demand for more spacious living environments, the rise of remote work, and the search for affordability outside the city core. Suburban areas such as Naperville, Evanston, and Schaumburg are experiencing a surge in multifamily developments. These locations offer a blend of urban amenities and suburban tranquility, making them attractive to a diverse range of renters, from young professionals to families.
Real estate experts agree that multifamily properties will continue to be a resilient asset class in 2024. Despite economic uncertainties, the demand for rental housing remains strong. Data from the National Multifamily Housing Council (NMHC) indicates that vacancy rates in the Chicago suburban multifamily market are hovering around historically low levels, while rental rates are steadily increasing. This resilience is underpinned by demographic trends, including the growing number of renters by choice and the increasing popularity of suburban living.
Multifamily developers now need to get creative with their means of acquiring materials. Supply chain disruptions and rising costs have made traditional construction methods more challenging. Developers are turning to innovative solutions such as prefabricated construction and sustainable building practices to maintain project timelines and budgets. Additionally, they are forging strategic partnerships with suppliers to secure materials at competitive prices, ensuring that projects remain financially viable.
Developers are also focusing on creating a sense of community within their properties. Amenities such as co-working spaces, fitness centers, and communal lounges are designed to foster interaction and engagement among residents. These efforts are crucial in attracting and retaining tenants, ultimately contributing to the long-term success of multifamily investments in the Chicago suburbs.
So let’s get down to business. Here are the different facets of the changing multifamily real estate market in Chicagoland.
Demand Is On The Rise For Homes Outside Chicago’s City Center
First - The multifamily market in Chicago has been tested over the past year by shifting demographic patterns and changing lifestyle preferences. The COVID-19 pandemic has significantly influenced these changes. Many people have fled the once-vibrant city center for the tranquil suburbs. This exodus reflects a broader trend towards seeking more space, safety, and affordability.
Neighborhoods outside of the Loop have fared better than downtown and River North, which were severely affected. Suburban areas like Naperville, Schaumburg, and Oak Park have seen increased demand for multifamily housing. These areas offer a balance of urban amenities and suburban peace, attracting a diverse range of tenants.
Small studios have lost popularity as larger units have gained traction. This shift is driven by the need for more living space as people work and study from home. Families and individuals alike are seeking larger apartments and townhomes that provide room for home offices and remote learning spaces. According to recent market reports, demand for two-bedroom and three-bedroom units in the suburbs has surged.
Workers who used to live in the city are now marrying and starting their own families, further driving the demand for suburban multifamily housing. The pandemic has accelerated life decisions for many, prompting moves to areas that offer better quality of life for raising children. Suburbs with good schools, parks, and family-friendly amenities are particularly attractive. This demographic shift is reshaping the multifamily market, with developers increasingly focusing on family-oriented properties.
Mirroring the suburban flight of the mid-twentieth century, millennials are leaving city life for suburbs with more green spaces and better schools. This generation, now reaching their prime home-buying and family-raising years, is prioritizing lifestyle factors that urban environments often cannot provide. Suburban multifamily developments are responding by incorporating features such as playgrounds, community gardens, and pet-friendly policies. The appeal of a suburban lifestyle is reflected in rising property values and increased rental rates in these areas, indicating a strong and sustained demand.
According to Toney Morton, chief financial officer at Independence, Ohio-based Redwood Living Inc.,
“Residential living is the alternative to buying a home, and even homeowners, especially seniors, are transitioning more to multifamily complexes as their lifestyles change.”
COVID-19 negatively impacted small units or studio apartments downtown
Second: Chicago faced numerous difficulties after COVID-19, particularly in its downtown area. The pandemic drastically altered the city's real estate dynamics, leading to significant challenges. According to Crain’s Chicago Business, occupancy rates in downtown Chicago are at their lowest level since at least 1998. The pandemic's impact on the city center has been profound, as many businesses and residents reevaluate their needs and preferences.
The large increase in workers moving to more suburban locations around the country is a direct result of companies adopting work-from-home or work-from-anywhere models. This shift was aimed at retaining employees and cutting overhead costs. In Chicago, this trend was particularly noticeable, as people sought more space and better living conditions outside the dense urban core. Suburban areas such as Naperville, Schaumburg, and Evanston have seen a surge in new residents, reflecting a broader national trend.
Even when companies started inviting their employees back to the office, the office market lagged significantly. Many businesses either moved towards the suburbs or left the city entirely. This shift has left a noticeable impact on downtown Chicago's commercial real estate sector. Office vacancy rates have soared, and the demand for downtown office space has plummeted. Companies are finding the suburbs more attractive due to lower costs, more space, and easier commutes for employees.
This growing phenomenon is seen by many real estate experts as a major shift away from dense areas and high-rise living. The preference for suburban living is reshaping the real estate landscape. In Chicago, high-rise apartment vacancies have increased while suburban multifamily properties are experiencing higher demand. The need for outdoor space, lower population density, and better quality of life are driving this change. Developers and investors are now focusing more on suburban projects to meet this new demand.
Developers prefer suburban areas for new projects
Now, the suburbs are more appealing to developers because there is usually more land available for construction. This availability allows for larger projects and more innovative designs. Developers can create expansive multifamily units with amenities that are hard to fit into the crowded urban core. The open spaces and potential for green areas make suburbs an attractive option for both developers and future residents.
Downtown Chicago is already crowded with several infrastructure projects underway, building after building. The dense environment and limited space make new projects more challenging and expensive. High land prices and complex regulatory requirements also add to the difficulties. This congestion has led many developers to seek opportunities elsewhere, looking beyond the city center for their next big projects.
This push has led developers and investors to move farther from the city and choose suburban areas. Suburban locations offer fewer restrictions and more opportunities for growth. The trend is not just a temporary response to the pandemic but a strategic shift in long-term planning. Developers are recognizing the lasting appeal of suburban living, driven by lifestyle changes and work-from-home trends.
Several real estate developers are now heavily investing in suburban areas. These investments are transforming once quiet suburbs into bustling communities with modern housing options. Major developers are acquiring large parcels of land and planning multifamily units, shopping centers, and mixed-use developments. This influx of investment is reshaping the suburban landscape and providing new opportunities for growth.
This trend is great, especially for communities, as they now have easier access to amenities they used to travel towards the city for. New developments bring shopping, dining, and entertainment options closer to home. Suburban residents no longer need to commute long distances for these services, enhancing their quality of life. Schools, parks, and healthcare facilities are also being improved, making suburban living more convenient and attractive.
However, developers also work within a tricky tightrope. They need to balance the benefits of new developments with the concerns of existing residents. Construction can bring noise, traffic, and environmental impacts that may not be welcomed by the community. Developers must navigate these challenges carefully to ensure their projects are accepted and successful.
To reassure people living near the construction areas, developers need to engage with the suburban community. Effective communication and transparency are key. Hosting public meetings, providing updates, and addressing concerns can help build trust and cooperation. Developers should show how their projects will benefit the community in the long run, highlighting improvements and amenities that will enhance local life.
One pivotal trend in these suburban developments is the rise of the YIMBY (Yes In My Backyard) movement. This movement supports new housing developments, advocating for more affordable and diverse housing options. YIMBY activists argue that new constructions can help alleviate housing shortages and reduce prices. In Chicago’s suburbs, this movement is gaining traction, encouraging more inclusive and sustainable development practices. Developers who align with YIMBY principles can find support and reduce opposition to their projects.
According to Steve Rappin, president of Chicago-based Evergreen Real Estate Group, “There is greater public acceptance of affordable projects and an awareness of housing equity. The public is starting to realize how difficult it is for lower-income residents to find homes near their places of employment and are more willing to discuss this need and consider new housing options” and will gain momentum in the new year.”
Now that we’ve discussed the shifts of multifamily real estate from downtown Chicago to the suburbs, let me tell you which suburbs have performed the best here.
It’s Schaumburg, Arlington Heights, and Palatine!
Schaumburg and Arlington Heights-Palatine - best performing suburbs
Arlington Heights, Palatine, and Schaumburg are three Chicago suburbs that have shown exceptional performance in the real estate market. These areas have become highly desirable for both residents and investors. Each suburb has seen significant growth in rental rates and a decrease in vacancy rates, indicating strong demand for housing. The trend towards suburban living, fueled by the search for more space and better amenities, has greatly benefited these communities.
In Schaumburg, rents have increased by 15% over the past year, while vacancy rates have plummeted by 550 basis points to just 1.9%. This dramatic decrease in vacancies highlights the suburb's appeal. Schaumburg’s success can be attributed to its reputation as a safe place to live. The crime rate here is more than 1% lower than the state average for Illinois, making it an attractive location for families and individuals seeking a secure environment.
Schaumburg is also known for the popular Woodfield Mall, Illinois' second-most popular tourist destination. The mall attracts visitors from across the state, boosting the local economy and providing residents with a premier shopping experience. The combination of safety, amenities, and economic opportunities makes Schaumburg a top choice for renters and investors alike.
Arlington Heights and Palatine have also seen impressive growth. In Arlington Heights, rents have increased by 17%, and vacancy rates have dropped by 410 basis points. Palatine has experienced similar trends, with rising rents and declining vacancies. These suburbs are not only residential havens but also business destinations.
The trend towards larger living spaces is evident in these suburbs. Arlington Heights, Palatine, and Schaumburg offer multifamily environments with bigger units and more rooms. These spaces can be customized by residents to suit their needs, whether for home offices, playrooms, or additional living areas. This flexibility is a major draw for families and individuals looking for more adaptable living spaces.
The amenities available in these communities set a high standard. Each suburb offers extensive green spaces, recreational facilities, and quality schools, making them ideal for families. The availability of more acreage for development in these areas allows for the creation of new parks, playgrounds, and community centers. These amenities enhance the quality of life for residents and make the suburbs more attractive.
Conclusion
Multifamily real estate is one of the most dynamic and fascinating sectors in the real estate industry. It offers unique investment opportunities and plays a crucial role in providing housing for diverse populations. The sector encompasses a wide range of properties, from small apartment buildings to large, multi-unit complexes. Investors are drawn to multifamily real estate due to its potential for steady income, appreciation, and resilience during economic fluctuations.
The multifamily real estate sector is subject to many environmental changes, and the COVID-19 pandemic significantly transformed it. The pandemic altered living preferences and accelerated trends that were already beginning to take shape. Remote work, social distancing, and the desire for more personal space led many urban dwellers to reconsider their housing choices. This shift in preferences caused a reevaluation of where and how people wanted to live, with a notable impact on multifamily housing dynamics.
In particular, multifamily real estate developers have shifted their focus towards the suburbs. This shift is driven by the current demand, which has moved away from densely populated urban centers. Suburban areas offer more space, lower population density, and a higher quality of life.
As people continue to prioritize space and quality of life, the trend towards suburban multifamily real estate is expected to remain strong, offering lucrative opportunities for developers and investors alike.
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