The report states that over the next year, more than threemillion-sf of new retail product will enter the market. At the sametime, construction will decline, as developers and lenders exercisecaution in new development.

The report finds construction activity was very high last yearas just less than 3.5 million square feet began in the threeMetropolitan Statistics Areas (MSAs) combined. Constructioncommenced on two major multi-use projects in the Oakland MSA, PlazaEscuela in Walnut Creek and Bay Street in Emeryville. These twoprojects will add a combined 500,000 square feet of retail space tothe East Bay market. The remainder of new development in theOakland MSA is nearly all single-tenant properties. In the San Joseregion, construction is now underway on the Santana Row multi-useproject, which will bring another 680,000 square feet of retailspace to the local market.

Over the next year, Marcus & Millichap forecasts that theaverage vacancy rate will increase by less than one percentagepoint, pushing the regional average to 6.3%. A significant portionof the product under construction is pre-leased; however, thespeculative space that is coming on line is expected to take timeto absorb. In addition, more store closures are likely to occurthis year, which will put upward pressure on vacancy in all BayArea markets. The increases, however, are expected to be relativelyminor. The combined average is forecast to increase by just lessthan 1 percentage point. When compared to the apartment and officeinvestment markets, retail will continue to be the most stablemarket over the next year.