The Chicago multifamily market has had a hard time gaining the respect it deserves—but, in truth, it has a lot going for it. Chicago is a steadily growing market with durable demand that is rarely outpaced by new supply. As a result, its occupancy and rent growth exceed national averages. In most other parts of the country, deliveries have been dominated by luxury units. Not so in Chicago. The metro is a well-balanced market, where there are attractive rental options for all segments of the population—and for the investors who pursue them.
As a city, Chicago has a number of advantages that other metros would be hard put to match. The Chicago metropolitan statistical area (MSA) ranks second in the United States for Fortune 500 headquarters and is home to such giants as Archer Daniels Midlands, United Airlines, and McDonalds. It is one of the few major cities in the country that has retained its manufacturing base, but its diverse economy also includes finance, healthcare, trade, and utilities. In addition, Chicago is a transportation hub, with a large inland port, the fifth busiest airport in the United States, and all six of the nation’s major railroads. The metro area also boasts many universities, including the University of Chicago, University of Illinois Chicago, and Northwestern University, giving it a well-educated workforce.
The public perception of Chicago has been marred by concerns about crime, but, in fact, its crime rate is average for a city of its size and fell sharply in 2023 and 2024. And certainly, business has not been deterred. Among major Chicagoland projects in the works are the massive 128-acre public-private Illinois Quantum and Microelectronics Park on the South Side; a $7 billion, 55-acre mixed-use development called the 1901 Project on the Near West Side; the $6 billion, 53-acre mixed-use development called Lincoln Yards on the North Side; and the $2 billion, 4,080-unit redevelopment of the Cabrini Green sites on the Near North Side.
Higher than Average Fundamentals
Keys to the Chicago multifamily market include systemic factors such as zoning, regulation, and labor costs that keep development from getting too far out ahead of demand, as it has in the less regulated Sunbelt. There were an estimated 9,900 rental units delivered in 2024, slightly more than 1.0% of the 758,000 units in the market as a whole. Although deliveries were double the historical average, absorption was not far behind. In fact, according to RealPage, absorption exceeded deliveries by 600 units during the first half of 2024.
As a result, Chicago occupancy rates have been consistently within 50 basis points of 95.0% for last two years, comfortably ahead of the national average. And rent growth has been strong. According to Yardi/Matrix, at 3.3%, Chicago ranked fourth nationally for rent growth in 2024. Rent growth is expected to slow somewhat to 2.7% in 2025 but pick up in the following years because construction starts have fallen dramatically over the last year. Construction starts in Q3 2024 fell by over 95% from their peak during Q1 2021.
The Loop Turns Around
The bellwether for Chicago is the Loop, its downtown center. Even before the pandemic, people had been abandoning the Loop with their employers not far behind. COVID-19 significantly accelerated this process. Thanks to city policies that have made its revitalization a priority, the area has begun to turn around. The September Chicago Loop Alliance report revealed that office occupancy now ranks third among major U.S. cities and hotel occupancy rates are within 7% of 2019 levels.
Multifamily is also seeing a renaissance. The downtown area was responsible for a quarter of Chicago’s absorption in 2024, and the Loop, along with Streeterville/River North and Evanston/Rogers Park/Uptown, was one of the top areas for new construction in 2024. Chicago has also been allocating funds to support office-to-residential conversions. Some of the Loop’s most iconic buildings are currently being repurposed and are scheduled to add over 1,000 units, about one-third affordable, when they are slated to lease up in 2027.
Renters and Investors Head to the Suburbs
But even as downtown Chicago has seen a resurgence, so have the suburbs, thanks to hybrid work arrangements. The Lake County/Kenosha, Evanston, and Naperville submarkets all saw Q2 2024 year-over-year rent gains above 4.8%. Developers are also eying Aurora and Joliet, both of which have seen corporate expansion and significant employment growth.
These suburbs have a lot to offer millennials and Gen Z, including excellent schools, varied housing, and a range of entertainment options. At the same time, they are within striking distance of all that the city proper has to offer. But members of these cohorts may not be ready to own, creating opportunities for apartment investors as well as developers. In 2024, there were large sales in Elk Grove Village and Aurora. At the same time, Yardi Matrix reports there are 8,100 units under construction in suburban Chicago, approximately 4.3% of the 2023 existing inventory. The newly opened Station 250 in Mundelein, a northwest suburb, is representative of these projects. Designed for transit-oriented tenants, it features 160 luxury units.
Conclusion: A Market Ready for Its Moment
If Chicago’s multifamily investment sales have slowed in 2024—as they have done across the country—it is primarily because interest rates have remained stubbornly high. Cap rates rose in 2024, ending the year at an attractive 6.0%.
Until recently, Chicago multifamily was an insular world. Most investors were local, and there was little interest from institutions and those outside the area. While institutional interest has grown, it remains muted, but investors from other parts of the country have been drawn to Chicago by its strong market fundamentals.
Essentially, Chicago is a large, steady, and predictable real estate market that has flown under the radar for too long. For multifamily investors looking for higher cap rates, solid demand, and strong cash flow over the long term, that’s a real plus.
