Demand for units in the Phoenix is expected to keep pace with the 3,500 units that will be brought to market during the first and second quarters, and the 4,000 due during the second half of the year, according to a survey by Hendrick & Partners, a national multi-family advisory and research firm.

But with a population growth rate of 2.5% in the Valley during 2001, which translates into 74,000 new residents, the demand for new apartment is expected to outpace development. More than 8,700 units are expected to be absorbed during 2001, the Hendricks & Partners study says.

The overall vacancy rate should drop from 6.6% to 6.4% during 2001, while rent increases will not go beyond 4%. Smaller apartment complexes, expected to roll back rates to attract tenants, and affordable housing is expected to moderate apartment lease rate increases.

In Tucson, Hendricks & Partners expects slowing sales of single-family homes to buoy apartment activity. While employment growth will slow, it should remain strong at 3.8% growth, and population growth should increase by 1.9%, which equates to about 15,500 new residents.

Between 600 to 700 new units are expected to be built during 2001, and it will take most of the year to absorb the overhang from last year's construction and new units built this year. The overall vacancy rate should increase in the second quarter to the highest point in six years, with the student population mostly out of town. The rate is expected to decline during the second half of the year and reach 7.6% by year-end. Rent growth is expected to remain flat during most of the year, with a moderate gain of 3% toward year-end.