In 2002, San Diego County placed number two on the list, which ranks 40 apartment markets nationwide based on a series of 12-month forward-looking supply and demand indicators. According to the Marcus & Millichap report, San Diego has dropped one place due to "continued weakness in the luxury apartment." And Marcus & Millichap's researchers expect occupancy in this sector to continue to decline, saying that softened demand and continued construction will cause the vacancy level to climb by 30 basis points to 4%.

Despite this weakness in the luxury sector, the San Diego's apartment market is still one of the strongest in the country, as it finished 2002 with a 3.7% overall vacancy rate. And with prices for single-family homes increasing by more than 20% in the past year, more renters are being forced to remain in the apartment market for a longer period of time. Rental growth over the next year is expected to occur in the class B and C product classes, as Marcus & Millichap researchers say vacancy rates in these properties are "much tighter than in the class A luxury segment." Rents are expected to increase 3.5% in 2003, which will push the average monthly rate to $1,106.

ASouthern California dominated the National Apartment Index this year, with Riverside and San Bernardino Counties both placing as number one, Los Angeles grabbing the number two slot and Orange County filling the number fivAe notch. According to the Marcus & Millichap report, "top ranked markets typically are characterized by employment growth, rental growth, low vacancy, falling construction levels and a shortage of affordable single-family housing due to development constraints."