"Value appreciation was the driving factor for buyers in 2004, but there will be a shift back to cash flow as the primary motivator due to rising interest rates," according to the Marcus & Millichap report. The firm mentions two suburban areas--Schaumburg and Hoffman Estates in the northwest suburbs as well as Glen Ellyn and Wheaton in DuPage County--as examples where single-family prices are rising and development opportunities are scarce. On the other hand, investors should proceed with caution south of Interstate 55, Marcus & Millichap says, where job growth has been flat.

Meanwhile, Marcus & Millichap investment associate Steve Rachman recently brokered the sale of a 17-unit multifamily building at 4835-39 N. Ashland Ave. in the Uptown community for more than $1.9 million, or a 4.04% capitalization rate. The new owner plans to eventually convert the 76-year-old building to condominiums, but will continue to operate it as a rental property.

The firm predicts the overall vacancy will end 2005 at 6.9%, approaching the 2002 level, with asking rents increasing about 2% to an average of $972. Those improvements will come despite an additional 1,800 units being added to the market, the firm says.