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SEATTLE-Unlike the apartment and office markets, a recent report prepared by Marcus & Millichap Real Estate Investment Brokerage Co. has found that the Puget Sound retail market has remained relatively healthy.

“The Puget Sound retail market will continue to attract the attention of local private investors over the next year,” says Gregory S. Wendelken, regional manager of the firm’s Seattle office. “Transaction activity, which has been brisk, is not expected to falter. The retail market, unlike the apartment and office markets, has remained relatively stable in spite of the local and national economic downturns. This factor is very appealing to investors, especially those pulling money out of the still-volatile stock market.”

The report notes that in the last year, 1.7 million sf of retail space came online and another 1.5 million sf is expected to come online in the next year. It’s likely, however, that some of the retail projects in the works will be deferred or abandoned due to the weak economic and office market conditions. Several prominent projects, including Lincoln Square, which is planned to boast 530,000 sf of office space, a hotel, condominiums and 330,000 sf of retail, have been put on the back burner.

Retail vacancy throughout Puget Sound will increase by roughly 0.5 percentage points over the next 12 months, to 6.4%, according to the report. When compared to the local office and apartment markets, which both experienced significant hikes in vacancy, the retail market has remained stable, the report finds. Over the past year, the overall vacancy rate rose 1.2 percentage points, to a still-healthy 5.9%.

The report says rents are expected to remain unchanged over the next year, holding at $18.80 per sf. Rising vacancy caused rents to decline by 1.2% over the past 12 months, from $19 per sf during the third quarter of 2001. Rents vary significantly by market area. Submarkets reporting rents above the regional average include Downtown at $36.44 per sf and the Eastside at $22.45 per sf.

Based on the number of transactions and total dollar volume reported, investor demand for retail properties today is just as strong, if not stronger, than it was in 2000 and 2001, the report says. This trend will continue through 2003, as investors reward the retail sector for its stability during difficult economic times, the report states. The median price per square foot for multi-tenant retail properties during the first three quarters of 2002 was $125 per sf, up from $123 per sf during the same period last year.

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