It all depends on how you look at it. By some indications Chicago is trending up, only a few places. Population loss and inclusive growth continue to be major challenges.
As the decade winds down, we thought it was appropriate to take a deeper look at Chicago’s economic outlook going into the New Year and the new decade. Recent political change has meant some uncertainty about the fiscal future of our region. Will Illinois implement the Fair Tax? What will the City of Chicago do to incentivize affordable housing development? How will it handle budget and pension shortfalls? Questions and uncertainty often translate into fear, as investors hit pause and wait until there are answers and clear policies.
Going into the next decade, inclusive growth will be more important than ever.
Here we take an objective look at some of the economic trends happening in the Chicago region, and what they might tell us about our future outlook. The short answer is that some indicators, Chicago is healthy. The region’s unemployment rate is near a 50-year low, demand for office space is strong, new office space is coming online, and vacancy rates are low. But this is only happening in a few concentrated places in and around downtown Chicago. At the same time, newly released data show that Chicago’s population continues its trend of slow decline. Going into the next decade, inclusive growth will be more important than ever. Our economic vitality will depend on it.
A Few Parts of Chicago are Booming
A recent Wall Street Journal article noted that sales of commercial real estate declined by nearly 50% over the past twelve months, which was more than any other metro area among the top 50 largest. Though this isn’t necessarily an indication of a dire economy, as indicators other than sales show (sales were also up more than 50% in 2018, after two previous down years). For example, the new square footage of office space delivered in 2019 is already at its highest in the past ten years.
Vacancy rates are also near ten-year lows, and 2019 is on pace to have the highest amount (square feet) of office space under construction since 2007.
But it is just a few areas that account for the vast majority of the growth of office space—and almost all of it was high-end space—with the West Loop accounting for more than 50% of the inventory. Excluding the areas immediately around the central business district paints an entirely different picture.
Job Growth is Solid but Also Highly Concentrated in and around the Central Business District
The region's unemployment rate is near a 50-year low. Private employment grew by 3.5% annually over the past decade, which is on par with hot markets such as Nashville, Denver, and Austin. Job growth in the past year was largely comparable with the national average, but most of Chicago’s job growth has been captured by highly-educated younger populations in and around the Central Business District. Leisure and hospitality is an area where the region’s job growth is outpacing the rest of the country.
In the last quarter of 2019, job growth has slowed in Chicago area, with “retail trade,” and “information” related job growth turning negative (this includes everything from media to software, data processing, and print).
Retail has been hit hard across the board, and is down in most places across the Chicago region. One notable exception is River North and the Near North Side, both of which are up over the past year. Sales of multifamily properties have also been highly variable, depending on the location. Sales are down in Evanston but up across Northwest and Southwest Chicago.
Inclusive Growth Remains the Big Challenge Heading Into the Next Decade
One of the biggest indicators that all is not well in the region is the continued population stagnation. The slow decline of population, particularly among Black and Hispanic residents illustrates that things are not working well for everyone. The most recent data just released show a continued trend of white population growth in the City of Chicago, and slight decline in the Black and Hispanic population.
This ongoing tale of two cities affects all of us. Last year, the Brookings Institute ranked Chicago as 74th out of the top 100 metro areas in terms of inclusive growth by race. Racial disparities in income, employment, and job growth, among other indicators are a major drag on the economic health and vitality of the region.
Inclusive Growth Necessitates Good Planning, and all Stakeholders Pulling in the Same Direction
Our region’s economic vitality cannot be driven by high priced commercial real estate in a few neighborhoods alone. We cannot solve our fiscal challenges without inclusive and equitable growth. We need comprehensive planning that encourages investment across neighborhoods and real estate classes. We need the right types of tools to incentivize growth for jobs all education levels. Strong planning will bring certainty to the future of Chicago and the region, and investment will turn positive again, as it typically does. Most importantly, we need all sectors pulling in the same direction and using a shared language about the future vitality of the region, and a shared understanding of the importance of equitable and inclusive growth.