However, Gordon Von Stroh, the author of the report and a business professor at the Daniels College of Business at the University of Denver, says it is typical for multifamily vacancies to rise in the fourth quarter forseasonal reasons. "Given the limited number of new additions to the inventory for the past eight quarters, the slow improvement in the overall economy, and low interest rates, the increase in the vacancy rate (from the third quarter) was expected," according to Von Stroh.

In the fourth quarter, all six counties showed an increase in vacancy rates from the third quarter. Thirty of the submarkets showed an increase, while seven showed a decrease. In the fourth quarter of 2002, the vacancy rate stood at 11.7%, but at the end of 2001, it was 8.7%.

Buildings with "up to eight" units category had the highest vacancy rate at 12.5%, up from 8.6% in the third quarter. Buildings with 100to 199 units had the lowest vacancy rate at 8.7%, but still up form 7.4% in the third quarter.

Von Stroh notes that historically, larger buildings have had the highest vacancy rates. Mark Williams, executive director of the apartment association, tells GlobeSt.com that for many small owners, 2004 was tougher than 2003, although the overall market improved from the previous year.

The average rental rate increased to $822 for the fourth quarter, the second highest monthly rental rate. It is up from $821 for the thirdquarter of 2004 and up from $815 for the fourth quarter of 2003. However, Williams cautions that number doesn't really reflect the market. Average rents do not include the cost of rental discounts and concessions, models, bad debts and delinquencies. Those costs averaged 15.1%, which is down from 16.1% in the third quarter. But when those additional costs are factored in, the true average monthly rent is about $700, Williams says. Indeed, that is reflected in the "economic vacancy," which is the vacancy plus concessions and other write-offs as a percent of gross potential rent. The economic vacancy rate at the end of the year stood at 25.1%, up from 23.1% a year earlier and 24.5% in the third quarter.

Steve Rahe, an apartment broker with CB Richard Ellis, says that about75% of the building owners and institutional buyers he speaks with expect a modest improvement in 2005 from 2004. That is much more bullish than they were in 2003. If mortgage interest rates rise, fewer renters will leave apartments to buy homes, notes Tom Lunistra, president of Apartment Finders International. Also, rising home foreclosures, although bad news for homeowners, is good news for apartment owners, he notes.