Suburban apartment landlords keep hiking rents, but they’ve lost some of their pricing power.

The median net rent in the Chicago suburbs rose to a record $1.47 per square foot in the second quarter, up 1.2 percent from a year earlier. The suburban occupancy rate rose to 95.6 percent, up from 95.5 percent in second-quarter 2017.

Apartment rents across the nation have soared over the past several years amid the expanding job market, the primary driver of demand for apartments, and a continued preference for renting over owning among some people. Millennials, for instance, are getting married later than 25- to 35-year-olds have in the past, pushing off home purchases and renting instead. And more empty nesters are selling their homes and moving into apartments, boosting demand for rental housing in some markets.

But the suburban Chicago market has lost some of its momentum over the past year or so. At 1.2 percent, the median net rent growth in the most recent 12-month period was down from 2.8 percent in the prior period and 5.2 percent from second-quarter 2015 to second-quarter 2016.

He attributed some of the slowdown to a shift in jobs from the suburbs to downtown. At the same time, landlords in some suburbs are having a harder time raising rents amid competition from new buildings. 

Indeed, the rising rents of the past few years have fueled a suburban construction boom, with developers adding 1,363 units in the suburbs so far this year and another 4,148 under construction, according to Integra. Developers completed 2,831 suburban apartments in 2016, an annual record, and 1,843 last year.

The construction is spread out over a large metro area, reducing the risk of a glut, but some suburbs where developers have been especially busy have felt the impact. On the North Shore, which has added 1,917 apartments since the beginning of 2015, the median net rent fell 6.2 percent in the second quarter from a year earlier, more than any other suburban submarket, according to Integra.

“That’s going to be a challenge,” DeVries said. “That’s quite a bit of inventory for one community.”

Competition will be good for tenants, who have been on the wrong side of the rising apartment market for a long time. The median net rent for a hypothetical 1,000-square-foot suburban apartment has risen to $1,470 a month, up 28 percent from $1,150 seven years ago, according to Integra.

The median net rent rose in eight of 10 suburban submarkets in the second quarter, led by McHenry County, with a 5.5 percent increase from second-quarter 2017, according to Integra. In addition to the 6.2 percent drop on the North Shore, the median net rent fell 0.5 percent in the Naperville/Aurora submarket.

Source: Crains Chicago Business September 10, 2018 12:21 PM ALBY GALLUN