Many of the top commercial real estate firms assert that the combination of job growth and a diminishing supply of rental housing will make San Diego the second strongest apartment market in the country during 2005 and 2006.

This prediction stems from the recent report on America’s apartment and condo market, where they rank 42 metro areas based on job growth, vacancy rates, construction, affordability, and rent hikes (sudden increase in prices). San Diego claims its spot right behind the Riverside-San Bernardino area and the second strongest market in the nation. Southern California holds four of the top five spots, making it the country’s hot spot.

The reports also predict that rent would increase six percent in the Riverside-San Bernardino market this year, a rent spike that experts are not forecasting for San Diego County. According to MarketPointe Realty Advisors, a local real estate research firm, the rate of rent growth in San Diego has been decreasing.

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On average, rents increased three percent in the San Diego market last year, down from four percent in 2003, and six percent in 2002. Experts say that the recent trend of condo conversions – in which the developers upgrade the apartment and put it on the market for sale as a condo – is keeping the rent hikes from becoming unreasonable. Apartment owners are afraid to raise rent on their property because of the high concentration of condo activity. Owners fear that a rent hike will cause renters to become buyers.

San Diego’s strong market can be accredited to the area’s recent trends, including job growth, low vacancy rates, and a decrease in apartment supply. Real estate experts maintain that alongside Miami, San Diego is the only metro area in the country where the supply of apartments is declining. Apartments are inherently converted into condos faster than new ones are being built. This fact, juxtaposed with a growing population, may cause the vacancy rates to become even lower, leading to a further increase in demand for condos in San Diego. Another facet that bolsters the strength of the San Diego market is the number of investors that are buying condos, both natural and converted, some of which will end up reappearing back onto the rental market.

Given these trends, will San Diego stop at number two? Or will we see Riverside-San Bernardino county dethroned as the top condo market in the nation?

Gregrey Pashby is a writer and contributor for Gaslamp Vacations who specialize in Vacation Rentals in San Diego. Mr. Pashby also contributes to Vacation Renter, the nationwide condo vacation rental website.