ATLANTA-Economic expansion is fueling growth of the retail sector, according to Marcus & Millichap's National Retail Research Report for 2006.

According to the report's National Retail Index, which ranks 42 retail markets based on a series of 12-month forward-looking supply and demand indicators, Atlanta ranks number 13. Last year, it was ranked number 14. San Diego and Orange County, in California, were ranked numbers one and two for the second year in a row.

"Economic expansion is supporting retail sales and driving retailers' demand for space, as well as a ramp-up in construction activity," says John Leonard, Marcus & Millichap vice president and regional manager of the Atlanta office. "Transaction activity remains strong as investors target the area's rapidly growing suburbs, such as the Peachtree Corners/Norcross submarket."

The growth in the retail sector can be attributed to a number of factors. According to the report, Atlanta's employment base will expand by 2.1% with the expected addition of 50,400 jobs in 2006. Due to the growth of the suburbs and revitalization of urban areas, developers are adding retail space at a rapid pace, with six million sf expected to be completed in 2006.

However, the report predicts that vacancy will rise 40 basis points to 8.8% in 2006 due to absorption being outpaced by new construction. Despite the rise, owners will raise rents 3.2% to an average of $17.22 per sf, the report predicts.