How COVID-19 Changed the Rental Market

Six weeks ago, the Chicago rental market was running at 94.2% average occupancy, rents were trending up 2-3% year over year, and the biggest concern for renters was competing for units in the spring leasing season. Today, we are in uncharted territory.

COVID-19 has done something to the rental market that the 2008 financial crisis did only partially: it has disrupted the fundamental demand patterns that drive pricing. Here is what our data shows, what it means for renters, and where we think this goes.

The Immediate Impact: By the Numbers

We track pricing and availability across over 2,000 buildings in the Chicago metro area. Here is what has changed since mid-March 2020:

• Citywide occupancy: Dropped from 94.2% to approximately 90.1%. A 4.1 percentage point decline in one month. For context, the 2008-2009 recession took eight months to produce a comparable drop.
• Loop occupancy: Down 8.3% to 86.7%. This is the hardest-hit submarket. Downtown buildings depend on office workers, and with offices closed, the value proposition of living downtown has evaporated for many tenants.
• Lincoln Park occupancy: Down only 1.8% to 93.4%. Neighborhood demand has held remarkably steady. People still want to live in residential neighborhoods. They just do not want to live in glass towers above empty office buildings.
• Concessions: 62% of buildings are now offering at least one month free on new leases. That is up from 18% in February. Some buildings are offering two to three months free, which we have not seen since the aftermath of the 2008 crash.

What Is Driving the Decline

Remote Work

The most obvious driver. If you do not need to be in an office, the primary reason to live downtown disappears. Downtown apartments command a premium for commute convenience. Remove the commute, and the premium becomes a penalty: higher rent for a smaller space in a denser area. We are seeing tenants who lived in the Loop and River North choosing not to renew, opting instead for larger units in Lincoln Park, Lakeview, or even suburban locations.

Job Losses

Illinois unemployment claims have spiked to levels not seen since the Great Depression. The hospitality, food service, and retail sectors are decimated. Many of these workers live in the same neighborhoods as the luxury buildings we track. When income disappears, rent becomes the first negotiation.

Frozen Mobility

People who would normally be moving in the spring leasing season are not moving. Some are sheltering in place and unwilling to tour or move during a pandemic. Others have lost income and cannot afford moving costs. This reduced mobility means fewer new leases being signed, which means higher vacancy, which means lower prices.

The Suburban Pull

There is genuine movement toward suburban areas with more space and lower density. We are seeing this in search patterns: inquiries for apartments with outdoor space (balconies, patios, yards) are up 340% since March. Inquiries specifically mentioning "work from home office" or "extra bedroom for office" are up 280%.

However, I want to be careful about overstating the suburban migration narrative. The data shows increased interest, but actual lease signings in suburban locations are up only 12% while downtown lease signings are down 35%. The gap between interest and action suggests many people are considering but not yet committing to a suburban move.

The Concession Playbook

The types of concessions currently available are worth cataloging because we have not seen this level of flexibility from buildings since 2010:

• Free months: 1-3 months free on 12-14 month leases. The most common concession. Two months free on a 13-month lease = 15.4% discount.
• Reduced security deposit: Some buildings waiving the security deposit entirely or reducing it to $250-500 (from the typical one month's rent).
• Waived amenity fees: Buildings with monthly amenity fees ($25-75/month) are waiving them for the first 6-12 months.
• Free parking: Downtown buildings offering complimentary parking (normally $150-300/month) for the lease term.
• Rate locks: Some buildings guaranteeing renewal rates at the current discounted price, which is unusual. Normally, the concession-adjusted rate reverts to the gross rent at renewal.

The math is dramatic. A one-bedroom in River North that was renting at $2,100 per month in February is now available at $1,900 with two months free on a 14-month lease. Net effective rent: $1,629 per month. That is a 22.4% reduction from the pre-COVID price.

Where This Goes Next

Prediction is difficult in a pandemic, but the pricing data supports a few observations:

Prices Will Recover, but Slowly

Rental markets have recovered from every previous shock, including the 2008 financial crisis. The question is timing. In 2008, Chicago rents took approximately 30 months to recover to pre-crisis levels. This crisis is different in nature (public health vs. financial system) but comparable in magnitude. Our estimate: 12-18 months to full recovery, assuming the economy reopens in phases over the summer and fall.

The Concession Playbook Is Now Permanent

Before COVID, many buildings had effectively forgotten how to offer concessions. Occupancy was high enough that they did not need to. Now, every building has relearned the concession playbook. Even when the market recovers, buildings will be quicker to offer concessions in future downturns because the muscle memory is fresh. This is structurally positive for renters.

Downtown vs. Neighborhoods Will Rebalance

The current downtown vacancy spike is driven by a temporary condition (office closures). When offices reopen, demand for downtown apartments will return. But the structural shift toward more remote work, even if partial (two to three days per week in office), means downtown's commute premium will be smaller than before. Some of the pricing gap between downtown and neighborhoods will close permanently.

Space Will Command a Premium

The pre-COVID trend in luxury apartments was toward smaller, more efficiently designed units with shared amenity space. COVID has reversed this. People want more private space: a second bedroom for an office, a balcony, a larger living area. Buildings that can offer larger floor plans will command a premium relative to the micro-unit trend that dominated 2015-2019 construction.

If you are in a position to sign a lease in the next three to six months, you are likely looking at the best rental pricing in Chicago since 2011. These prices will not last once the economy reopens and demand normalizes.

What Renters Should Do Right Now

1. If your lease is up in the next 3-6 months: Negotiate aggressively with your current building. They would rather keep you at a lower rate than lose you and face a vacancy in this market. Ask for a rent reduction or concession on renewal.
2. If you are searching for a new apartment: This is a buyer's market. Tour virtually (most buildings offer video tours). Negotiate everything: rent, concessions, parking, fees. Get at least three quotes in your target neighborhood and use them as leverage.
3. If you are locked into a lease with no near-term expiration: Document your current lease terms. When renewal comes, you will have leverage based on the market rates available today. Buildings cannot pretend the market did not soften.
4. Do not panic-move to the suburbs. If you love city living, the suburbs will not fix pandemic anxiety. But this is a great time to upgrade within the city: move to a larger unit, a better neighborhood, or a nicer building at the same or lower price.

The rental market is repricing in real time. For once, the repricing favors renters. If you are informed, flexible, and willing to negotiate, this is a window of opportunity that comes around once a decade.