"Despite the national economy continuing to sputter, the Chicago apartment market will realize strong gains in rents and values in the next 12 months," says Marcus & Millichap senior vice president and regional manager Greg A. Moyer. "High demand for rental units in the region compounded by the removal of stock from active condominium conversion activity are expected to strengthen the performance of the local apartment market this year. The next 12 months are expected to bring continued low vacancy, higher rents and increased values."

Marcus & Millichap forecasts the market's overall vacancy rate of a tight 4.3% to remain steady over the next 12 months, while rents increase by 6% and sales prices by 4%. Now at $985 per month, the average rent in the market has increased 22% since 1998, according to Marcus & Millichap. Meanwhile, sales prices are expected to crack $50,000 per unit this year, the firm predicts, which would be a 37% jump in the same period.

Much of the increase in sales prices can be attributed to the increasing presence of condominium converters who were able to outbid multifamily operators for buildings. However, according to the report prepared by senior market analyst Frank J. Kupiec, lower interest rates in the 7% range have allowed multifamily buyers to compete with the condo converters, driving down capitalization rates.