If you own apartments in Southern California, chances are you already feel pretty good about your investment. So does Marcus & Millichap, whose national apartment report lists San Bernardino-Riverside, San Diego, Orange County, and Los Angeles among its top five markets in the country.

“You've had solid employment growth and 180 degrees of the compass where you can't develop because of the ocean,” says Linwood Thompson, managing director for Marcus & Millichap's National Multi Housing Group. “The availability of land and the attitude of government and neighborhood groups make it much more complicated, time-consuming, and expensive to develop a raw piece of land.”

Given such trends, it's an attractive region for apartment firms. “BRE is concentrating its development in Southern California because we believe in its economic diversity and strength,” says Deirdre A. Kuring, executive vice president of asset management with BRE.

Still, Texas-based M/PF YieldStar says apartment owners should look east. The firm rates Albuquerque, N.M., El Paso, Texas, and Tucson, Ariz., as its top three apartment spots. They “are very small markets,” says Greg Willett, vice president of research and analysis for M/PF YieldStar. “It really doesn't take too much demand to keep them full. The economic outlooks are pretty positive, and none of them really have any sort of construction going at all.”

Construction plays a large factor in M/PF's projections, which are weighted to markets that don't add units. Marcus & Millichap balances construction in absolute terms, the percentage increase in apartment stock, the relationship between jobs and construction, and single-family home affordability.