Noting Archstone-Smith's $107-million sale of Plaza 440 to a condominium converter, Marcus & Millichap reports other REITs are doing conversions themselves. Among them are Equity Residential, which aims to convert 1,000 across the US in 2005.

Capitalization rates are down to the 6% to 6.5% range, with converters driving the market by paying at least one percentage point below that for multifamily assets. However, the market is not likely to see the 520 transactions it saw last year, according to the company's Chicago Apartment Research Report. Meanwhile, the overall vacancy rate is trending down, and heading to 7.1% by the end of the year, according to the report, while effective rents are holding steady at $882 per month.

Bucking the trend are the Loop and West Lake County submarkets, where rents have increased more than 3% over the past year. And vacancy rates have decreased by nearly two percentage points in Joliet, Kane County, Downers Grove and McHenry County, according to Marcus & Millichap's research. The worst submarkets are the city's West Side and northwest suburban Wheeling, hit hardest by increases in vacancy and falling rental rates.

Overall, the market is seeing relatively light construction activity with 1,700 units coming on line this year, while local payrolls are nudging up by 0.3%.