The Marcus & Millichap research points to a 0.4% increase in the area's overall apartment vacancy level, as it crept up from 3.5% to 3.9% in the first quarter of this year. Despite the slight up tick in vacancy levels here, San Diego multifamily owners are continuing to raise rents. Rents have increased an average of 1% to $1,081 in the first three months of 2003, the Marcus & Millichap report says.

Investment demand is still strong in the area with apartment buyers "attracted to the region's projected population and employment growth and its shortage of affordable housing due to development constraints and skyrocketing single-family home prices," Marcus & Millichap's researchers note. Although the median price per unit dropped 1.55% in the first quarter of 2003, it has spiked 23.22% to $95,500 over the past 12 months.

Despite the delivery of more than 2,000 new apartment units in the first three months of this year, the San Diego multifamily market is still tight. As Kent Williams of Marcus & Millichap explains, " Most of the construction is luxury units and a lot of the activity is focused in Downtown San Diego, where the allure of a new Downtown ballpark has sparked mixed-use development that includes residential components."