Are we going to see another year of record renewals?

I think we are likely seeing another record year for rental renewals here in Chicago.

Between May 2021 and May 2022, Chicago set a record for lease renewals nationally at 57%. The average renewal rate between 2010-2019 in Chicago was only 52%. Here is a recent article I was featured in from The Real Deal going over exactly this. 

This was one of the drivers that forced rents much higher last year in Chicago. Let's take a look at what we are seeing so far this year....

Closed condo sales in Chicago this year are down 37.5% compared to Feb 2022. Condos under contract are down 34.1% compared to Feb 2022 (Although recent data from March is showing much stronger momentum going into Q2). Condo inventory (excluding new construction not delivered) is down 28% this year compared to Feb 2022. Condo new listings are down 33% this year compared to Feb 2022.

If closed sales, properties under contract, overall inventory, and new listings are all down significantly, you would think that more people are renting instead of buying, which is normally true. However, rented units are also down 28% compared to Feb 2022.

This is why I think it is highly likely we are experiencing another year of record renewals. Tack on the dramatic decline in home affordability, and you can see a clear path for rents to continue to climb here in Chicago.

Worth mentioning is that last year, we had a lot of owners list their properties for sale and rent. The majority of these owners ended up becoming landlords, as these units got absorbed by the significantly stronger rental demand relative to buyer demand. We had more than normal supply, but we also saw significantly stronger demand for rentals. Certainly, more than I had anticipated.

All this points in the direction that we will see a lot of the same from last year when it comes to the rental market. Median rents are up about 8% compared to Feb 2022 with no signs of slowing down. 

Additionally, I think what else may be adding to all this is that renters gave an arm and a leg to lock something down last year. It was not uncommon for 2-3 beds in Lincoln Park, Old Town, Lake View, Wicker, etc. to receive 10 applications and rent for 20% above ask ( sometimes on a 2 year lease). My guess is we have a significantly larger pool of renters on longer leases than normal.

I'd also wager that some renters are borderline traumatized from last year and want nothing to do with dipping their toes back into the rental market again, which is also taking more rental supply off the market.

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