The report cites "strong fundamentals and increasing values," along with limited construction that has kept the supply tight in the short term and expected job growth that could tighten the market even further in the long term.

Lane M. Schwartz, regional manager of the firm's Los Angeles office, cites "soaring housing costs and a growing population" as additional factors. He notes that the region still labors under a "lack of for-sale apartment product" that bodes well for sellers because it means that buyers compete to enter the market and thus push prices higher.

Among the other factors cited in the Marcus & Millichap report as drivers of the Los Angeles apartment market:

--Payrolls will decrease by 22,000 jobs in 2003 but post a dramatic comeback in 2004, addking 67,000 jobs in L.A. County.

--Asking rents will increase by 4% in 2004, pushing them to $1,195. With the exception of a few areas, owners throughout the county have increased rental rates over the last year. The average asking rent is currently $1,140 per month, a rise of 3.8% from one year ago. Class B and class C properties garnered the strongest gain, at 4.2%, but even class A properties managed to post an increase of 3.1%.

--The median price for properties in the less-than-20-unit category has increased by 8%, to $97,000 per unit. There have been approximately 1,500 transactions thus far in 2003, putting the county on track to exceed 2002's record total of 1,810 sales. The median price of 100-plus-unit properties has surged 21% since 2002, to $110,000 per unit. Solid market fundamentals in 2004 will support an additional gain in prices of 5% to 8%.

--Construction levels will fail to meet future demand as the population will grow by 100,000 people annually. Developers are forecast to deliver only 5,000 to 6,000 new units yearly until at least 2006.

--Improving economic conditions will support increased demand in 2004, causing vacancies to decline by 30 basis points, to 3%.

--Demand for properties that cater to moderate-income households is keeping the Los Angeles apartment market stable. Class B and class C properties represent the bulk of the market and have maintained a vacancy rate below 3% since the beginning of 2002. Class A tenants have been more successful at making the jump to homeownership. The combined vacancy rate is anticipated to end 2003 at 3.3%, identical to year-end 2002.