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BIG CITY ON THE UP

8 July 2013

Why we think it’ll be worth turning your investment attention to Chicago

For the past couple of years everyone’s been looking to take advantage of the rebound in the US as post-recession growth continues to create more and more opportunities. While New York remains a good bet for your real estate investments, Chicago is now emerging as a very promising alternative market that we see offering very strong returns over the next few years. Take a look at the following market analysis to see why we think it’ll be worth turning your investment attention in that direction in the near future.

Guest Blogger:
Scott Hagerman
Investment Manager
North America & Asia Pacific

Ranked seventh in the 2012 Global Cities Index and recognised as the hub of commercial transportation in the US, Chicago is a centre for businesses targeting growth across a range of sectors. Although the rebound has been slower than in other major US cities, the resurgence of Chicago is very much underway.

Chicago is seeing a surge of commercial investment right now, with the number of global companies entering or expanding into the city increasing from 50 in 2011 to 80 in 2012. Strong international investment from Europe, Canada and Japan has meant half of the international investment entering the Midwest in 2012 was focused in the Chicago market.

Fortune 500 companies from a range of sectors are headquartered in the city, including Boeing, Sears, Groupon and United Continental Airlines, a selection which highlights the diversified economy Chicago enjoys. Areas such as River North and the West Loop are home to thriving tech clusters while the city has announced an expansion of initiatives aimed at fostering tech corridors throughout the city. 

Chicago’s fast recovering economy has been a boon to employment in the area as well. In the year to September 2012, the city added nearly 45,000 employed residents, ranking it first in the US for employment growth and contributing to a 2.5% drop in the city’s unemployment rate, the largest annual reduction since 1995. The central city area has been especially dynamic in this regard, adding more residents than any other downtown in the nation between 2000 and 2010 according to the Census Bureau.

This growth is being driven by expansion in the professional and business services and science and technology sectors, with big companies such as Google, Motorola, Nokia and ThyssenKrupp attracting an influx of young professionals. Where projects and factories had previously been fixtures of the greater downtown area of this once firmly blue collar city, residents now enjoy restaurants, entertainment and green space.

The Real Estate Picture 

The Chicago real estate market is particularly enticing for investors who missed the post recession lows of New York and San Francisco. Chicago’s more gradual rebound means the opportunity still exists for investors to enter the market at an opportunistic time in the market’s recovery cycle, with the city’s Case-Shiller Index still approximately 32% below its prerecession peak.

As a result, Chicago remains the most attractively priced major US city relative to prerecession highs: the median house price in the city remains below USD300,000, approximately half that of other major markets like New York and Los Angeles.

The Chicago market is clearly on the up though. Condo prices rose 7% over the year to March 2013 according to the Case Shiller Condo Index, and given the city’s severe lack of inventory these are figures that will only continue to move in the right direction.

From a yield perspective, Chicago also compares very favourably to other major cities such as New York and San Francisco, where recent price growth has been so strong that yield compression is beginning to limit investor returns. Investors in the Chicago market can expect gross yields upwards of 8-9%, and net yields of 5-6%.

The city’s low-tax environment is another factor setting the city apart as an attractive alternative destination for real estate investment, as transaction costs and income and capital gains taxes in the state of Illinois are significantly lower than in New York and California

It’s pretty clear that Chicago is looking like becoming one of the next few years’ investment hotspots, so take a close look at upcoming opportunities in this currently underrated metropolis and get yourself into a rising market early to make the most of its high-potential returns.

Where to Watch in Chicago 

Particular areas worth looking out for include Chicago’s central business district, the Loop. The area is traditionally more commercial than residential, but this is changing as a decade-long trend of suburbanisation begins to reverse and city living becomes more desirable. The Loop was Chicago’s fastest growing residential neighbourhood in 2012. 

The South Loop is currently benefitting from favourable tax incentives from the city that are stimulating numerous high-end developments in the area. Comparatively affordable and with improving liveability, this is another area seeing a strong “flight to value” effect from both developers and residents.

 With its proximity to the Loop, the Lake Michigan Waterfront and the city’s best universities, the Near North Side continues to be one of the safest bets in the Chicago market. Home to a mix of new development and redevelopment, the area offers a wide variety of options for investors.

IP Global

Written by IP Global

IP Global’s full-service approach is built on extensive market research and analysis combined with a significant financial commitment to every investment we offer. We are able to manage the entire investment process end-to-end, from sourcing, financing, and management to those all important exit strategies, making investment in real estate as straightforward as investing in more traditional asset classes. Our expertise, experience and strong record have produced over USD2.8 billion in international real estate investments in over 30 markets worldwide.

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