Yet it was that slowdown in the sales market--specifically,condominiums--that put significant pressure on the region last yearas shadow rentals pushed supply up, while a weaker economy andmoderating job growth impacted demand. The good news this year isthat the supply pipeline, which peaked in the fourth quarter of2007, is declining and landlords are increasingly able to bump uprents, despite vacancies. For the fourth quarter in a row,annualized absorption of class A units tops 5,000, and,importantly, the presence of the shadow market is being felt lessas absorption and rent figures are showing strength or both class Aand B product.

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As of the third quarter, the stabilized vacancy rate for the DCmetro area came in at 3%, up a mere 10 basis points from the prioryear, and half the national rate of 6%. Overall rent growthremained modest--2.9% since September 2007, below the long-termannual average of 4.5%--but class A rents saw 1.1% growth over thepast year, compared to an 80-basis-point decline in the thirdquarter of 2007.

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Absorption figures showed improvement as well, with 7,583 classA and B units leased in the third quarter. For the first time ever,DC-area class A absorption--6,872 units--came in first in the US.And while the take-up rate at new projects declined to 15% a month,that's a considerable figure given the fact that the number ofprojects with units on the market has grown by more than half overthe past year. Those absorption figures could be up due to anuptick in landlord concessions, which now account for 4.3% of facerent, from 3.6% of face rent in Q3 2007. Concessions have beenrising since the beginning of 2007, point out Deltaresearchers.

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On the plus side, the pipeline is beginning to shrink at last,though it remains relatively full. At its lowest point, there were18,000 units in the works in 2005. Due to condo reversions, supplygrew to 36,951 units at year-end 2007. That number began to declinequarter over quarter this year, landing at 29,322 units at the endof September.

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Meanwhile, a tighter financing climate has resulted in a slowerpace of investment sales. So far this year, $850.7 million worth ofclass A multifamily buildings closed. That's significantly lessthan the $1.26 billion in volume for the prior year. Also tellingis the number of land sales; only $126 million in land traded thisyear, significantly less than the $486 million in land salesrecorded through the third quarter of 2007. This, according toDelta, is a potential indicator of a slowdown in the pipeline ofoncoming supply in future years.

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No doubt the credit crunch has helped to considerably curtailnew starts, with only three new projects kicking off between Juneand September. The tighter financing conditions will continue tohamper new projects. "While frustrating in the near term," sayanalysts, "this tightening of the development spigot will improvesupply/demand balance and the health of the Washington market overthe intermediate term."

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For the near term, supply will likely continue to outpace demandfor the next 24 months, according to the firm, but the reducedinventory will probably lead to a lower vacancy than originallyanticipated--slightly over 4% in 2011 as opposed to the 5% that waspreviously projected. Key to any of the results, says Delta, liesin job growth.

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