Tuesday, October 6, 2015

A Quantitative Look at Whether the Sloop Can Absorb All the Proposed Real Estate Developments

We know real estate development is a hot topic around Chicago.  And while there has been a lot of conjecture, we haven't really seen much quantitative rationale assessing the impact of these new proposals.

Obviously this is still not a definitive answer, but it's a more informed piece than many we've read (via a Chicago Now real estate blog - Getting Real):
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 week 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.

So what does the blog conclude:
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.

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