April 23, 2016

Move over New York, Asia’s super-rich are shifting their attention to Chicago, splashing cash on towering skyscrapers in the downtown area.

Many property investors from the Far East are starting to look outside traditional gateway cities in the United States when spending their money. In recent years, Chicago, the third largest metropolitan area in the nation, has emerged as one of the top destinations for international investment, with Asians pumping in millions to buy commercial buildings and high-rise apartments in the city.

According to Vicky Silvano, National Chairwoman of the Asian Real Estate Association of America, around 16 percent of the US$20.2 billion of real estate transactions in Chicago last year were to foreign investors.

“Retail and office towers dominate most of the foreign investments, although luxury homes are also part of the mix due to the high quality of universities and colleges in Chicago.”

Two of the world’s top universities are located there: the University of Chicago, which has produced 18 Nobel Prize winners, and Northwestern University. Other main attractions include a highly-qualified workforce, good transportation network, and political and financial stability.

“Like other American cities, Chicago suffered through the 2008 Global Financial Crisis, but has exhibited a steady recovery in subsequent years,” said Tom Kirschbraun, International Director, Capital Markets at JLL.

“The influx of major corporate headquarters such as United Airlines, Boeing, ConAgra Foods, Google Midwest, and soon, McDonalds to the downtown, has boosted economic indicators tremendously.”

Silvano added that strong employment figures and wage increases there are outpacing many other U.S. cities. “Chicago’s economy is not dependent on any one industry. It has a vibrant manufacturing sector, the second largest financial market in the country, and a huge medical industry employing over 300,000 people.”

Separately, a joint study by Foreign Policy magazine and international consulting firm A.T. Kearney, ranked Chicago as the seventh most influential city in the world, trailing only New York, London, Paris, Tokyo, Hong Kong and Los Angeles. The annual report looks at five core metrics, namely business activity, human capital, information exchange, cultural experience and political engagement.

Cheaper than New York

Housing prices in the Windy City are considered more affordable, meaning “the middle-class is not priced out of Chicago’s real estate market as they are in some other U.S. cities”, said Silvano.

For instance, an apartment in Chicago costs roughly half as much as a similar unit in New York City, Kirschbraun said. “This is due to the abundant availability of land for new development, as opposed to the island of Manhattan.”

Global Property Guide, citing data from Standard & Poor’s Case-Shiller index, revealed that Chicago registered a price increase of 1.7 percent year-on-year in 2015, one of the lowest growths in all 20 major U.S. cities.

With 5,000 new residential units entering the market in 2016, demand for rental housing is expected to surge, said Silvano. “High demand driven by millennials who want to live in the city without the burdens of ownership has pushed rental rates in prime locations near Chicago’s Loop (central business district) to US$4 per square foot per month.

“A typical 1,000-square-foot apartment will cost between US$3,000 and US$4,000 a month. While less expensive compared to New York or San Francisco, it does represent a significant rise in new apartment rental rates in Chicago.”

While every property is different, investors could receive a cash-on-cash return of about three percent on rental properties, said Kirschbraun.

Originally published on by Romesh Navaratnarajah

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Tom Kirschbraun
International Director, JLL Capital Markets


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