The Inland Empire apartment vacancy rate edged up to 4% in the first quarter, compared with 3.7% at the end of 2002, according to the report. But at the same time, average sales prices paid for apartment properties increased by 20% in the past year.

The market, which is composed of Riverside and San Bernardino counties, is "a hotbed of investment activity," the M&M study says, noting that the Inland Empire apartment market ranked first last month in the brokerage firm's annual study of apartment markets nationwide. Despite the slight uptick in vacancy, according to M&M, buyers are attracted to the region's population and employment growth plus its relatively affordable property prices.

Inland Empire rents climbed 1.5% in the quarter and have jumped 6.78% over the past 12 months to reach $834 per month. The average price per unit being paid for apartment properties in the two-county region reached $59,000 in the first quarter, a 1.14% increase since the end of 2002 and a 20% jump in the past year. Marcus & Millichap forecasts that vacancies will remain below 5% in the Inland Empire, with rents projected to grow between 4% and 5% over the rest of this year.

Kevin Assef, regional manager in Marcus & Millichap's Ontario office, says the stability and growth in the market are prompting both new and existing owners to invest in "a substantial amount of building and renovation" of their properties. Apartment developers have shown increasing interest in the market recently too, with a number of institutional quality projects either under way or on the books for the region.