"Jacksonville continues to outpace US trends in both economic growth and apartment fundamentals, and an additional boost is expected as the national economy heats up this year," says Hassam Nadji, M&M's managing director, research services.

Nadji expects the area's 5.5% vacancy rate to drop to 5.1% this year; cap rates will range from 7.5% to 9%; and rents will rise 3.5% to an average $743 per month.

"While the recent rise in condo construction will continue to take a bite out of total demand, apartment conversions to condos have had a positive impact on the rental market," the analyst says. Numerous beachfront properties in the Sawgrass and South Beach submarkets have been converted to for-sale units in a tight land market.

"As a result, apartment values have risen to nearly $90,000 per unit in the Beaches submarket," says Nadji. That figure compares with median prices of $59,000 and $49,000 per unit for class B and class C inland properties. In 2003, "market-wide transaction velocity outstripped 2002's pace and the median price rose to $55,000 per unit," the analyst says.

Rent growth will be highest in the Orange Park/Clay County, Jacksonville Heights and North Jacksonville submarkets with projected gains of 5% in each market, Nadji says.

The development pipeline will remain "modest" in 2004 with only 1,100 units expected to be brought online, up from 920 units in 2003, he says. "Developers remain cautious of the near-term pressure levied by the robust single-family housing and condo markets," the analyst says. Employment is forecast to increase by 1.5% in 2004 as the city's economy gains momentum, Nadji says. Business services, retail trade and manufacturing are "the only sectors mitigating even greater job gains.