SAN DIEGO-A report by Burnham Real Estate Services shows that the hotspot in the San Diego realestate market continues to be apartments.

Current vacancy of just 1.4% confirms that demand for housing in San Diego County still outpaces theavailable supply–a scenario that is compounded by an increasing number of residents who cannot afford tobuy a home.

“The shortage of affordable and available housing in San Diego will continue to be an issue for years tocome,” says George Carlson, vice president and apartment specialist with Burnham Real Estate Services. “As a result, apartments are well-positioned for a strong future investment-wise.”San Diego County apartment rental rates are at theirhighest level ever, up 53% since the beginning of 1996, the Burnham report shows.

“Renters of newly built units today can expect to pay, on average, over $1,700 per month and average rentsoverall stand at just over $1,000 per month,” Carlson said. “While this is clearly a good thing for owners,it is certainly prohibitive for a large percentage of our rental population. Unfortunately, high land costs and government regulatory fees leave developers little choice but to build higher end product to offset these costs. Certainly expect affordable housing to be a leading agenda item for city leaders and planners in the years ahead.”

Adds Mark Cuffell, Burnham's managing director of multifamily services: “With the apartment supply-demand equation clearly working in the favor of investors, apartments continue to offer the best risk-adjusted returns of all real estate investment product types. Look for double-digit returns to continue throughout 2002 – and possibly beyond.”

The Burnham apartment report shows that per-unit sales prices of San Diego apartments remain at all-time highs, with newer and larger projects seeing the highest escalation in prices.

In 2001, projects of 100-units or more sold for a median price of $100,850 per-unit – up from $74,000 in1995. However, the sales activity involving these larger projects slowed notably during the year. The 13transactions recorded compared to 40 the year before, the Burnham study shows. “We expect to see strongeractivity in larger projects this year, as many projects slated to close in 2001 were delayed until first quarter of 2002,” Carlson said.

Smaller apartment projects saw sales activity rise notably over the past year, accelerating a trend that actually began three years ago. The 715 sales in 2001 compared to 533 sales in 1999. Prices for smaller projects are also on the upswing, selling for a median price of $64,500 per unit.

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