Press Release (ePRNews.com) - AURORA, Ill. - Jun 13, 2017 - This year, real estate developers will complete a record 450 apartments in downtown Aurora and another 350 in 2018. This is expected to become a potential downer for landlords which are enjoying one of the best rental markets in Illinois, according to Adam Hochfelder, a Managing Director of Real Estate Acquisitions & Development at Merchants Hospitality. So far, in the first quarter, the market has held up amid strong demand for apartments.
For the Class A buildings, the average net effective rent rose to $2.9 per square foot in the first quarter, which is 1 percent up when compared from the same period 2016, according to Hochfelder. This is much lower than the 3 to 5 percent increases in the apartments rent in the past years while the average Class A effective rent has risen 45 percent since 2009. All this suggests the market has started to decelerate but has not shifted in reverse, yet. We expect to see the whole picture of the market in the following couple of months when from the 450 planned new apartments some 200 will open in July and August. This could initiate a competitive scramble for tenants, said Hochfelder.
“It’s kind of the calm before the storm,” he said.
Is This Good News For Tenants?
It can be expected that developers will become more anxious to fill their buildings. This could be a good news for tenants, as real estate developers could offer them a month or two of free rent to entice them to sign a lease. Landlords have had leverage over tenants for a long time but they could lose some of it in the following period.
“We’ll probably see an increase in concessions simply because there will be so much product out there,” Hochfelder said. “Some owners will try to hold the line, but others can become more aggressive and try to fill up their apartments.”
No Crisis Looming
Hochfelder doesn’t expect a crisis with the apartments market in Aurora. He is positive that the supply of downtown apartments will exceed demand for a few years and as a result rents might decline, but not by much. The demand for apartments has been especially strong as downtown employers have increased hiring and also some companies moved their corporate offices downtown. And while the Aurora area’s overall population is stagnating since 2010, the city center gained an estimated 6,000 residents from 2010 to 2016, according to figures from the U.S. Census Bureau’s Population Estimate Program.
The decline in unemployment rate, down to 4,1 percent as of April 2017 and population gains have fueled a demand for downtown apartments. This is also evident from the change in the number of occupied downtown apartments, a total of 282 units in 2016 which is a record.
After a strong first quarter, Hochfelder forecasts the market will absorb around 300 units this year and 600 more in the following two years. That’s prediction is based on Hochfelder’s expectation that some of the buildings opening over the next few years will generate more demand for apartments. Any further gains from a higher employment rate should help as well.
Strong demand is already filling one new building: the Terminal Building at Galena Boulevard and Broadway. Most of the building’s 26 apartments are already leased, ahead of projections, said its developer, David Karademas. He has seen a strong interest from couples with two incomes. “They want to walk to work, walk to the bars, walk to the restaurants,” Karademas said.
Nonetheless, even such an increase in the demand can’t keep up with an increase of 450 newly built apartments in this year and another 350 in 2018. Hochfelder expects so see a drop to about 92 percent in the next year for the downtown Class A occupancy.
Karademas also acknowledges that the market could soften in the following period. “It may take a little more time to absorb them,” he said. “Rents might be a little flat.”
Article originally posted at http://www.chicagotribune.com/suburbs/aurora-beacon-news/…