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SEATTLE, WA-A reduction in development “should sustain the health” of the retail sector of Puget Sound’s commercial real estate market—so says a newly released research report of Marcus & Millichap Real Estate Investment Brokerage Co.

Despite expecting an economic slowdown here because of the area’s ties to the aerospace industry, Gregory Wendelken, regional manager for Marcus & Millichap, says the Puget Sound retail market has survived massive Boeing layoffs in the past and “will weather the storm.”

Wendelken cites a “steady reduction in retail construction activity over the past few years” as keeping supply for properties below demand levels. According to the report, new construction activity is expected to drop for the third year in a row, with starts falling below two million square feet. Over the next 12-month period, Marcus & Millichap believes new starts will be down 18% over the previous one-year period, dipping to 1.6 million sf.

The report also estimates 1.8 million sf of new product will come online. Of that, about 40% is built-to-suit space for single tenants.

Marcus & Millichap is forecasting retail vacancies in the Seattle market to rise approximately 1.5% over the course of the next 12 months. However, the report says that with current vacancies at only 5.5%, the “market is expected to remain relatively healthy.”

As to rents, Marcus & Millichap says as a result of increases in vacancy and what it calls “cautious owners,” growth in rent rates has been slowing. For the next year, the company expects any rent growth to be “negligible.” In the midst of an economic crawl, the report says it expects landlords to focus more on tenant retention than in bumping up their rents. Nonetheless, increases in the 1% to 2% range are expected.

On the investment side, Marcus & Millichap says retail investment activity has “remained brisk” and is expected to continue at a similar pace through 2002. The report anticipates sales prices remaining “steady through year-end,” with low interest rates expecting to impart some stability to the velocity of transactions.

Based on its own research, Marcus & Millichap says the average price/sf for multi-tenant retail is currently just above $120/sf—reflecting a 6% increase over the average a year ago—but a 4% decrease from year-end 2000.

With 34 offices across the U.S. reporting total sales in excess of $6 billion last year, 30-year-old Marcus & Millichap is reportedly the largest, commercial real estate brokerage in the nation focusing exclusively on real estate investments.

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