CHICAGO-Like a Super Bowl caliber defense, the multifamily market bends, but does not break. While property owners have felt the softening market in terms rent concessions and slower increases, values continue to rise in spite of construction.

“We’re seeing a steady stream of multifamily construction in Chicago, and we haven’t seen that shutting down,” says real estate economist Nancy Chesley, who covers the market for Property & Portfolio Research.

Of the 14,266 units started in the year ending June 2002, 56% were for condominiums and townhomes, rather than rental units, Chesley tells The only city that comes close to that percentage, according to Property & Portfolio Research, is Washington, D.C. at 37%.

Rental vacancy rates are lower than other markets, Chesley adds, but competition from those new condominium units as well as continued attractive mortgage interest rates play havoc with a property owner’s tenant pool. There may be some good news on the horizon for those owners, however.

“While we’re seeing condominium construction remain steady, we do expect that to taper off,” Chesley tells, noting this year’s pace is slower than 2001.

And while sales have declined in terms of the total number of transactions, capitalization rates haven’t seen a significant change, Chesley reports. Meanwhile, Marcus & Millichap’s summer apartment research report predicts a 5% increase in values this year from $58,000 per unit.

Those same low interest rates that are nudging vacancy rates to 4.4% also are fueling multifamily property acquisitions, notes Marcus & Millichap. “Low interest rates are enabling buyers to reap solid returns even though increased values as a result of low vacancies and consistent rate hikes are pushing up the initial cost of investment,” according to its report.