Most of the new construction will be luxury apartments and will be absorbed immediately. But it won't be enough, according to the brokerage. "Unfortunately, new construction will not meet the needs of affordable housing in 2001," Williams says.

Despite slowing job growth, solid demand will help vacancy remain near 2% through 2001. Rents, meanwhile, increased by 8.4% in 2000—to an average of $943—with smaller increases forecast for 2001 as affordability and the slowing economy become more pressing issues.

This increase was similar to the 9.17% and the 8.88% increases experienced in 1999 and 1998, respectively, according to Marcus & Millichap.

The average rent for new apartments opening during 2000 was about $1,538 per unit, which is about 6.4% higher than the rent being charged for apartments which opened in 1999 at $1,445 per unit. Newer apartments experienced slightly lower rent increases than the overall average, which makes it clear that newer apartments are experiencing more competition than the older apartments.

Rents in the northern portion of the county averaged $1,003 per unit in 2000, while the southern county averaged lower rents of $878 per unit. The North County will continue to experience higher rents during 2001 and beyond, as this area tends to be more upscale with newer developments that are closer to some of the popular beaches and tourist attractions.

Investors continue to take advantage of San Diego's strong apartment market with about 375 transactions recorded in 2000. The 2000 transactions were up slightly from the 370 recorded in 1999. A small increase in transactions is expected in 2001, as many investors will choose to sell properties in anticipation of a slowing economy and buyers look for good deals.