"Though the 93 first-quarter sales transactions is up slightly from 87 transactions in the first quarter of 2007, the slower double-digit activity reflects the continuing disparity in prices between what cautious investors want to pay and the value existing owners continue to see in their properties," said George Carlson, associate director and apartment specialist with Cushman & Wakefield San Diego. The number of apartment units sold between January and March is also down 48.9% from the 2,854 units that traded in the first quarter of last year, and marks the lowest units, of units sold in a quarter since 1992, when 1,352 units changed hands.

Overall, C&W states that multifamily assets in San Diego County are well positioned given the high barriers to entry and little new construction. There were just 2,490 new unit additions to the area in 2007 and only 1,290 units are slated to hit the market this year, the firm reports, citing data from MarketPointe Realty Advisors. Further, vacancy as of the first quarter was just 3.6%, while rents rose nearly 4% over the year to $1,311 a unit. This, says the firm, continues to support the hold strategy of many existing owners.

"Many existing apartment owners are adjusting their investment strategy to a focus on cash flow through higher occupancy and rental rates," says Carlson. "They recognize the growing demand for rental units due to recent home foreclosures, as well as the fact that in San Diego housing prices, though down from recent years, are still out of reach for many." And given the caution in the investment arena due to the slowing economy and capital market constraints, he adds, there "has been a shift in investment strategy rather than a fallout with declining values."Meanwhile, Marcus & Millichap Real Estate Investment Services has a similar opinion. Fundamentals in the market are tight, though it does face some threats from failed and unsold condominiums that pose competition. The firm expects employment to take a hit as companies, particularly those in the housing industry, continue to lay off workers. The good news is that deliveries will be fairly modest at 990 new units this year, up from 920 last year. Despite this, vacancy will edge up 80 basis points to 4.5% by year's end, after a 30-basis-point decline in 2007. Rents will also rise, though at a more sustainable pace, says the company. Both asking and effective rents should go up by 2.9% to $1,336 per month and $1,297 per month, respectively, by year-end.