UBS recently rated Chicago as the city least likely to see a bubble among the world’s top 20 financial centres. While it may seem a strange aspect of residential real estate to focus on, it really interested me. We live in volatile and uncertain times when it comes to speculation and/or long term investing. Three to five years ago, the vast majority of people I spoke to looked for aggressive returns, quickly. They followed the market, which was also moving at a fast pace. Things have changed, and it may well be a short-lived change or a quick correction, but I believe more and more of the so-called smart money is looking to long-term stability and sustainable growth to weather any storm that may be on the horizon.
Which makes Chicago a good bet… or does it?
A great indicator of long-term demand for housing in any region is employment statistics. People can’t afford to buy homes if they’re not working. Therefore, we looked at the employment numbers reported by the Bureau of Labor Statistics for the Chicago metropolitan area, which includes not just heavily corporate downtown areas and the Loop, but also towns such as Naperville and Joliet.
We track employment instead of the unemployment rate because the latter is strongly affected by estimates – and it’s the employed that buy homes. The graph below shows employment growing sustainably since 2010 as of July 2018.
Chicago area employment has nicely rebounded from the depths of the recession.
These numbers had been showing growth until June 2008, when employment started to drop from the previous year. After plummeting to 14-year lows, Chicago area employment finally rebounded during 2010 and has been generally trending upward since. Chicago area employment in July 2018 hit its highest level since data has been available, surpassing the previous year by 25,000 jobs. Both employees and employers need homes.
Chicago high schools dominated the U.S. News & World Report 2018 rankings, with eight Chicago city schools included in the state's top 10, according to the magazine. Walter Payton College Preparatory High School in Chicago's Old Town neighbourhood took the number one spot in Illinois and was ranked 52nd best high school overall in the country (by patch.com).
The University of Chicago is ranked third best university in the United States and their business school is ranked first.
Chicago is well catered for when it comes to education.
Transport links and infrastructure
It seems to me that every day in Chicago a new light goes on. Over the next four years 85% of America’s third-largest city’s public lighting will be replaced, or 270,000 lamps, at a cost of US$160 million. What does that have to do with house prices and rental increases? The plan speaks volumes about a city that has historically been a reference point for the US business community and that today wants to start shining again through a series of new infrastructure investments. Now the mayor, Rahm Emanuel, is doubling down with a promise to undertake more works projects to create 40,000 more jobs, ranging from transport to energy and from water mains to logistics, to give a new and more modern face to one of the most iconic cities in the US.
A high speed rail link will connect downtown Chicago to O’Hare International Airport, the nation’s third busiest, cutting transport time by 50% to 20 minutes. Express service to and from O’Hare will give Chicago natives and visitors more options, faster travel times and build on Chicago’s competitive advantage as a global hub of tourism, transportation and trade, said Emanuel. This one big change is forecast to increase daily passenger traffic between the airport and the Chicago central business district from the current 20,000 to 35,000 by 2045.
Chicago’s vitality and importance as a business centre did not pass unnoticed by the current POTUS, who included two projects in the city on his infrastructure priority list. The first is a renovation of 92-year-old landmark Union Station, with a US$1 billion budget. Apart from being a strategic transportation hub handling 300 trains and 120,000 passengers on a typical working day, the renovation could directly create 1,000 new jobs, according to the City Council.
This is an elephant in the room, and while not a pleasant topic to write about, it’s one that must be considered when looking at the fundamentals of growth.
There is one major issue that comes to my mind, or at least it did before we started exploring Chicago for our investors at kamaco, and that is the perception of urban crime. The reality is that in the Chicago city centre — where overseas investors would and certainly should focus their investments— there is far less crime than the national average, and in fact zero violent crimes have been recorded in the last 12 months. The same cannot be said of the wider Chicago and Illinois areas, as the chart below shows us.
Walgreens, Boeing, ADM, United Airlines, Allstate, Exilion, Macdonald’s, Kraft Heinz and Sears, all call Chicago home — major blue chip companies with a combined workforce of hundreds of thousands of people. Facebook has added a huge office in the Loop, in a deal that could give the company room to expand to at least 2,500 employees in Chicago. The social media giant has leased 263,000 square feet in a recently completed 35-storey tower at 151 N. Franklin Street.
Chicago’s tech sector keeps on climbing, and the city’s 100 biggest digital tech companies alone employ nearly 48,000 people, up from 41,000 in 2016. That number was bolstered by growth from pillar tech companies and up-and-comers alike. That’s a huge leap and it’s set to continue the upward trend over the next five to seven years.
When you consolidate these factors with the lack of prime residential opportunities coming to market and the prices those few opportunities are coming to the market at, it makes for a compelling argument for why we at kamaco believe Chicago should be on investor's radar.