Can Chicago's South Loop Absorb All The New High Rise Construction?

On Thursday I wrote about all of Chicago’s  new high rise construction in the South Loop that has recently been announced. With just the 5 projects I wrote about I estimate that we are looking at approximately 2061 new apartments and 1123 new condos/ townhomes. That’s a ton of new housing units so the question is whether or not the South Loop can absorb all that new supply in a reasonable time frame.
If you recall the South Loop became a real wasteland during the housing bust and it wasn’t until Related Midwest bought 504 condos and remarketed them that we were able to put that whole series of unfortunate events behind us. But according to a May article in Crain’s it took Related Midwest just about 3 years to sell all those condos. So how long will it take the South Loop to absorb 1123 new condos and 2061 new apartments?
Let’s review the historic data for the South Loop in the graphs below. Most importantly there is the inventory spike and recovery that the South Loop went through. At it’s worst the inventory of condos and townhomes hit slightly more than a 28 month supply. When Related came in they initially took a lot of that inventory off the market, but it was really still there, so the numbers appeared to plummet. Eventually they sold through that “shadow inventory” and now we’re sitting at a fairly authentic 3.2 month supply, which is low by anyone’s standards. This level is fairly typical of the more popular Chicago neighborhoods and it’s considered a seller’s market.

As you can see in the graph below that inventory was driven down by a sales rate that has picked up substantially over the last few years. In the last 12 months 1145 condos and townhomes have been sold in the South Loop. So the new condo supply being added is about one year’s worth of regular sales. The only thing is that the turnover of existing supply is meeting that demand. The real question is how much additional demand they can create for these new condos at a time when there is a building boom throughout the rest of the city.

What is probably more relevant to this discussion is the fact that it took Related 3 years to sell off 500 units of “new supply” but since then the market is stronger and inventory is lower – not to mention that all this new supply will not be built at once and there will be pre-construction sales going on before the building are completed. So, on the surface, this endeavor is probably doable provided the Chicago economy doesn’t fall out of bed in the meantime or everyone decides to leave the city because of skyrocketing property taxes.
Then again there is all that other new supply being built around the city and not just condos but all those rental units. At some point if the supply of rentals keeps rents down renting may become cheaper than buying and undercut the demand for condos so who knows? Once the results are in we can all claim to have seen it coming.
#SouthLoop #chicagorealestate
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.

Leave a Reply