[IMGCAP(2)]The implications of the forecast for investors are mixed, too, since rents are a chief factor in determining pricing and a major component of the net operating income that investors rely on to calculate cap rates. As with many if not most discussions regarding investment properties these days, the outlook for the apartment market is tied to the employment outlook.

As Tracey Seslen, co-author of this year's Casden Multifamily Market Forecast puts it, "The future health of the Southern California multifamily market continues to be shaped by jobs, housing prices, the shadow market of rental homes and condos, and new construction." Seslen says that, overall, Southern California will not enjoy sustained increases in rents until the greater economic health of the region improves.

On the other hand, rents in San Diego may increase slightly when jobs return―and since housing is still too costly for renters to become buyers in San Diego, landlords should be able to achieve the increases. The reason that San Diego will outperform the other SoCal markets in rental and vacancy rates is a steady stream of defense contracts and strong growth in the biotech industry that buoy the region's economy, the study explains.

Seslen's co-author, Richard K. Green, notes that while housing prices have dropped precipitously due to the surging rate of foreclosures in the Inland Empire region of Riverside and San Bernardino counties, the low-cost homes are being snapped up by all-cash buyers, not renters, who often lack 20% down payments and the income needed to qualify for a mortgage. "Housing is more affordable across the region, but low consumer confidence is keeping many first-time buyers on the fence and move-up buyers that lost equity are staying put. That opens the door for an increase in rents," Green explains.

Los Angeles County is another matter: The unemployment rate hovers at 12.3% and plenty of inventory stands empty, thanks to new luxury condos being turned into rentals. In Orange County, average rents will decline at a slower pace as new projects in Anaheim and Irvine will continue to attract renters priced out of the housing market, according to the forecast.

The Casden Multifamily Market Forecast analyzes new building permits, leasing activity and employment data using information from MP/F YieldStar, Hanley Wood and other sources. The forecast provides a county-by-county outlook for Los Angeles and Orange counties, the Inland Empire and San Diego County.