AUSTIN-The retail real estate market should continue to be strong in 2003, outperforming other commercial real estate sectors, according to a report from Marcus & Millichap Real Estate Investment Brokerage Co. The report says people continue to move to the Austin area and that job growth is rising.

Employment was up 0.6% in the third quarter over the 2001 third quarter, the first year-over-year increase since the first quarter of 2001. For all of 2002, however, employment will fall 0.2% because of the continued job losses in technology.

Developers should deliver about 1 million sf in 2003, a bit lower than the 1.1 million sf delivered this year. While developers continue to look for good infill spots, activity will remain focused on outlying areas.

Vacancies in 2003 should match the rate of 2002, which is expected to close with a 6.7% vacancy rate. The report says pressure on vacancies comes from the muted economic recovery, a steady new supply of space and a slight surplus of space vacated by retailers who have gone out of business.

At the same time, rents will continue to increase by about 2%, according to Marcus & Millichap. The report says property owners have been emboldened by the market’s ability to sustain high occupancy levels. Strong performance from higher-end shopping centers in outlying areas contributed to a 2.2% overall rent increase in 2002.

Sales activity through September 2002 was in line with that of 2001 and the overall median price continued to increase, Marcus & Millichap says. But sales may drop in 2003 because owners may be reluctant to put their properties on the market. At the same time, values may keep rising as investors, unable to find good returns in the stock market or office and industrial real estate, try to find refuge in the retail sector.