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IRVINE, CA-The Inland Empire has been named the top multifamily investment market to watch with Orange County coming in second, according to the multifamily edition of Orange County-based Sperry Van Ness’ “Top 10 Markets to Watch” report. Las Vegas, Orlando and San Jose round out the top five markets, respectively.

“Together, San Bernardino and Riverside counties represent the complete package when examining all of our index metrics, as they rank near the top in almost every category,” according to the report, whose index metrics include, among other things, population growth, home affordability, vacancy and rental trends.

“While the Inland Empire’s cost of living is still higher than many parts of the country, it pales in comparison to that of Los Angeles and Orange County. As such, the region is experiencing tremendous growth.”

The Inland Empire is expected to add 40,500 new jobs and 13,000 more residents in the next 12 months. However, with single-family home prices on the rise, the report from the Irvine-based company gathers that the available renter pool will continue expanding for several more years. That, combined with a relatively low inventory per capita of just 0.25 units per person, leads the study to theorize that vacancy will improve 20 basis points, to 4.2%, over the next year.

Orange County, the No. 2 market to watch, came in high on the list because, according to the study, “with single-family homes priced well beyond the means of most Orange County residents, many households [have] become renters by necessity.”

As such, the study predicts that vacancy will fall 20 basis points over the year, to 3.2%. Orange County will also add more than 22,000 new jobs in the next 12 months, equaling a 1.5% increase.

“With Orange County at the top [of the list], investors are asking, ‘How much upside is there left?’” John McDermott, regional manager of Sperry Van Ness, tells GlobeSt.com. “That’s the real question. The answer [or motto] for many investors appears to be, “I want to own what is scarce and getting scarcer through the next real estate cycle and beyond.”

And scarcity does appear to be a significant theme throughout the Orange County market, with McDermott noting that, “Orange County will be out of developable land by 2025 and the Inland Empire is the only way direction growth can occur.”

Job growth and new residents were important indicators throughout the study. The study notes that Las Vegas, the No. 3 market to watch, will add 57,000 new residents and 36,000 more jobs. No. 4 Orlando will take in 35,000 new jobs and 62,000 new residents, as vacancy has improved more than 300 basis points over the past few years. The study also cites that San Jose, No. 5 on its list, has seen the 18- to 34-year-old demographic expand so much that it now accounts for more than 16% of the area’s total residents.

Nos. 6 through 10 on the list are: San Francisco, Washington DC metro, Raleigh/Durham, Phoenix and Tucson.

The study asserts that each of these markets is expected to see strong population and rental growth in the next year, which will lead to increased income potential for investors.

Sperry Van Ness’ report, which is valid through Q3 2007, comprised its list based on future trends and on the markets that showed the greatest potential for income growth based on economic indicators. Cap rates, prices and historic market data, though considered, were not heavily emphasized.

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