"Despite the national economy continuing to sputter, the Chicagoapartment market will realize strong gains in rents and values inthe next 12 months," says Marcus & Millichap senior vicepresident and regional manager Greg A. Moyer. "High demand forrental units in the region compounded by the removal of stock fromactive condominium conversion activity are expected to strengthenthe performance of the local apartment market this year. The next12 months are expected to bring continued low vacancy, higher rentsand increased values."

Marcus & Millichap forecasts the market's overall vacancyrate 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 permonth, the average rent in the market has increased 22% since 1998,according to Marcus & Millichap. Meanwhile, sales prices areexpected 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 theincreasing presence of condominium converters who were able tooutbid multifamily operators for buildings. However, according tothe report prepared by senior market analyst Frank J. Kupiec, lowerinterest rates in the 7% range have allowed multifamily buyers tocompete with the condo converters, driving down capitalizationrates.