Landlords continue to hold the upper hand in the San Diego multifamily market, with just a slight increase in vacancy rates over the past quarter, according to Marcus & Millichap's researchers. They say the overall vacancy level here has risen 20 basis points to 4.3% during the second quarter of 2003. However, the researchers also note that "better absorption of class A properties will help the region's apartment market achieve a 20 basis point improvement over the next 12 months."

As vacancy levels decrease in San Diego, rents will escalate, according to the Marcus & Millichap report. The firm's research illustrate a 4.7% increase in the average rent over the past 12 months to the current figure of $1,087 per month. As the report points out, most landlords are opting for concessions instead of rent decreases, which is having only a "mild impact on effective rents." The trend of rising rents is expected to continue over the next year, with annual revenue growth in the San Diego apartment sector predicted to increase approximately 1% from the end of 2002 to the end of 2003.

Sale prices are also expected to continue on an upward climb, with the Marcus & Millichap report noting that the median price is "expected to post a 7% increase over the next year, to $107,000 per unit." The cap rate has been steadily declining, dropping 100 basis points over the past 12 months to 5.9% at mid-year 2003. However, as Marcus & Millichap's researchers point out, "investors believe in the future of the market, as they see a growing number of jobs and low affordability securing a floor under prices."