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DENVER-The Denver area retail market plunged by 10 spots to No. 28 out of 38 markets surveyed in the National Retail Index by Marcus & Millichap. Denver fell from No. 18 last year because it had the second lowest employment outlook of the 38 markets surveyed. The NRI is a snapshot analysis that ranks 38 retail markets based on a series of 12-month forward-looking supply and demand indicators.

Despite Denver’s drop in the NRI, investors have created a competitive sales environment, resulting in premium prices for infill retail properties.

Highlights of the Denver market, according to Marcus & Millichap, include:

• Plagued by the telecom industry, Denver employers continued to lay off workers in 2002, resulting in a 0.9% percent decline in total employment. After two consecutive years of layoffs, Denver has been forecast to post a mild gain in employment during 2003, at 0.1%.

• Construction remained steady during 2002, with about 2.7 million sf added to inventory. This year only 1.5 million sf will come online, as the market works to absorb vacant space.

• While the current overall vacancy rate of 8% is slightly higher than 12 months ago, it remains unchanged compared to the year-end 2002 figure. As the market continues to struggle, the vacancy rate will remain relatively stable, finishing the year at 8.1%, Marcus & Millichap predicts. Despite the lack of improvement in vacancies, a 2.5% increase in rents is expected as the average rises to $17.17 per sf.

• Strong investor demand and a limited supply of for-sale product will continue to put upward pressure on retail property prices in 2003. On average, newly built shadow-anchored retail space commands cap rates in the low- to mid-8% range, while older, unanchored centers trade in the mid- to high-9% range.

The Washington, D.C., market topped the NRI for the second year in a row with strong market fundamentals pointing to another year of superior returns in 2003. Cleveland was ranked last.

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