CHICAGO-Job growth is slowing to a crawl, and higher energy costs are cutting into multifamily property owners’ net operating incomes. Neither, however, poses a large enough problem to derail the bullish Chicago area multifamily market, according to research by Marcus & Millichap Real Estate Investment Brokerage Co.

“Despite the national economy continuing to sputter, the Chicago apartment market will realize strong gains in rents and values in the next 12 months,” says Marcus & Millichap senior vice president and regional manager Greg A. Moyer. “High demand for rental units in the region compounded by the removal of stock from active condominium conversion activity are expected to strengthen the performance of the local apartment market this year. The next 12 months are expected to bring continued low vacancy, higher rents and increased values.”

Marcus & Millichap forecasts the market’s overall vacancy rate of a tight 4.3% to remain steady over the next 12 months, while rents increase by 6% and sales prices by 4%. Now at $985 per month, the average rent in the market has increased 22% since 1998, according to Marcus & Millichap. Meanwhile, sales prices are expected to crack $50,000 per unit this year, the firm predicts, which would be a 37% jump in the same period.

Much of the increase in sales prices can be attributed to the increasing presence of condominium converters who were able to outbid multifamily operators for buildings. However, according to the report prepared by senior market analyst Frank J. Kupiec, lower interest rates in the 7% range have allowed multifamily buyers to compete with the condo converters, driving down capitalization rates.

Some of the priciest recent sales cited by Marcus & Millichap include an eight-unit building at 1 W. Delaware Pl. in the Near North neighborhood, which sold for $200,125 per unit; the 29-unit Sedgwick Apartments in Lincoln Park, which traded at $151,706 per unit; and the 15-unit Ashland Apartments in Uptown, which was bought for $120,000 per unit. Also in the six-figure range on a per-unit basis were the sales of 38 units at 826 W. Lakeside in Uptown at $110,526 per unit and the 189-unit Marine Terrace at $108,446.

However, Kupiec’s report predicts sales prices will trail rent increases as higher expenses whittle away at net operating incomes.

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