According to Linwood Thompson, senior vice president andmanaging director of the firm's National Multi Housing Group, theshadow stock's greatest impact is being felt in outlying areas suchas the Chandler/Gilbert and Goodyear/Avondale submarkets. Theseareas were hubs for new construction and speculative buying duringthe recent housing boom, and the report projects apartment vacancyrates there to trend up to the mid-teens this year. By contrast,says Thompson, affluent locations such as Scottsdale face less of athreat due to the smaller number of homes and condos being offeredfor rent.

Thompson blames continued employment reductions for the market'sdrop in his firm's rankings. The region is forecast to lose 28,000jobs this year, a 1.6% drop, on top of a loss of 85,000 jobs in'08. The employment decline has resulted in people moving out ofthe area or doubling up to save money, decreasing apartment demand.But Thompson says completion of new projects also contributed tothe drop in rankings. According to the report, Phoenix added some5,000 apartments to its inventory in '08 and will add 2,200 more in'09.

As a result of decreased demand and inventory growth, the marketsaw a 300-basis-point rise in vacancy last year and is expected tosee another 110-basis-points rise this year, to 12.2%. The reportpredicts the continued rise in vacancies will lead to a 1.4%decline in the average asking rent to $768 a month and 2.9% declinein average effective rent to $691 a month.

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