Rising vacancies (10.3%) and zero rent growth, along with a large construction pipeline moved Atlanta to the bottom of the list. The national rankings are based on a series of 12-month forward-looking supply and demand indicators.

Bad as the ranking sounds, the M&M report suggests it will worsen as the year progresses, predicting a year-end vacancy mark of 11.5%. The Atlanta apartment investment market won't improve until 2004, even as employment growth is expected to bounce back to over 2% in 2003. That would translate to 43,000 new jobs on a year-over-year basis, M&M says.

"Apartment investors have become increasingly weary of paying premium prices for assets that have been under increased pressure lately," the report states. "Affordable financing has not been enough to entice buyers into paying higher prices for properties that have been experiencing diminishing net operating incomes."

The result is often a wide spread between buyer and seller expectations. Properties that have been listed for sale are experiencing longer marketing periods, resulting in an increase in available inventory.

The larger supply decreased the median sales price by nearly 19%, to $40,729 per unit, during 2002. "Meanwhile, the average cap rate has increased more than 50 basis points to offset the increased risk associated with uncertain market conditions," the report says.

The completion of 12,100 units in 2002 and mounting job losses stalled apartment absorption in most submarkets. Although absorption was strongest in Midtown and Gwinnett County, ongoing new construction is forcing owners to offer varied concessions.

For example, the new 276-unit Post Biltmore at Peachtree and Seventh Streets was offering new tenants a $2,000 check and one month free rent at its nine remaining units, according to a published report. Other new apartment ventures seeking 95%-plus occupancy by year end are offering one to six months free rent. Among them are the 296-unit Highlands at Ponce, the Savannah Midtown and the Renaissance on Renaissance Parkway.

Buckhead and Decatur posted some of the lowest absorption rates in 2002 but are getting a break this year as new construction grinds to a near-halt.

Although asking rents at some of the newer apartment communities are running from $1,560 per month for two-bedroom, two-bath units with utilities to $2,700 per month, rents at most area complexes will suffer as vacancies increase this year, the report predicts. Average rents are expected to drop by 1% to $790 per month. "Effective rents (factoring in concessions) will experience a more pronounced decline of 5%," M&M says.

Marcus & Millichaps lists the top five apartment investment markets as Riverside-San Bernardino, Los Angeles, San Diego, Boston and Orange County, CA.