"The thing that is most exciting about Tucson is its relative values compared to other cities," David Wetta, regional manager of Marcus & Millichap's Tucson office, tells GlobeSt.com.

The city's relatively low per-unit costs, which average $75,000 less per unit than in San Diego and $10,000 less per unit than in Phoenix, is among several things that is fueling investor interest in the area.

"While Tucson is smaller than other cities, it is accessible from California and Phoenix. With that close proximity and this tremendous gap in values, Tucson is starting to see a real increase in sales activity. And with rents bottoming out, I think your going to see a lot more activity in the next 12 months," Wetta says.

Savvy buyers who take advantage of today's low interest rates on underperforming properties, he notes, could reap the profits once the market improves. And improve it will due to a 2.1% expected increase in employment that will add a projected 7,300 new positions to the local job scene between the second quarter of 2003 and the second quarter of 2004. The tourism sector also is expected to gain 1.9% employment in 2003 with an additional 5.6 percent growth in 2004.

A slowdown in new apartment construction, attributed to increased single-family home building that weakened apartment demand during the past few years, will help stabilize the market, allowing vacancy rates to drop to 8.5%. Landlords, however, won't be able to let go of concessions, at least for now, until many of the remaining units are absorbed, which will probably happen within the next 18 months. Rents also will remain flat throughout 2003, averaging $560 per month, the study shows.