The Southern California apartment market had an impressive 2005, as rents and occupancies rose because of strong job growth and a lack of new supply. A new report suggests that this year's fundamentals will be even better, and this bodes well for BRE Properties ( BRE). The San Francisco-based real estate investment trust generates more than a third of its rental income from apartments in Los Angeles, Orange County and the "Inland Empire" east of Los Angeles. The rest of the REIT's portfolio is centered on San Diego, San Francisco and Seattle, with lesser exposure in Sacramento, Denver and Phoenix (the company is in the process of selling off many of its properties in the latter two markets). Currently, the Southern California apartment market (Los Angeles, Orange County and the Inland Empire) is seeing a 97% occupancy rate, and that will help push rents up another 6% to 7% in 2006, according to the USC Casden real estate forecast released Thursday by the USC Lusk Center for Real Estate. "The recent run-up in home prices makes apartment living more desirable," says Delores Conway, director of the Casden forecast. "And the tight supply of land coupled with more condo conversions means fewer available units. That translates into higher rents and occupancy rates for the next couple of years." However, more supply is coming. Los Angeles County currently leads the nation in multifamily development, with 10,900 new apartments under construction at the end of last year. But the area continues to exhibit strong job growth, and that means it won't be until later in 2007 that supply finally begins catching up with demand, Conway says. A year ago, the USC Casden forecast accurately predicted that the Southern California apartment market would continue to be strong in 2005, projecting that rents would increase 3.5% to 6% for the year. BRE's results ended up being even better.