SAN FRANCISCO-San Francisco held onto a Top 10 spot in Marcus & Millichap’s latest National Retail Index while Oakland and San Jose slipped well into the second tier.The NRI ranks 38 retail markets nationwide based on a series of 12-month forward-looking supply and demand indicators. The top-ranked markets are typically characterized by low vacancies, prospects for rental growth, limited new development, and solid employment and household growth.

Washington, D.C., ranked as the top retail market in the nation for the second consecutive year due to its compelling demographics and reliable economic engine fueled by the public sector. Rounding out the top five were Orange County, Calif., (No. 2), San Diego (No. 3), Boston (No. 4) and Fort Lauderdale, Fla., (No. 5). San Francisco came in at No. 6, down one spot from last year, while Oakland and San Jose, respectively No. 8 and No. 12 last year, dropped to No. 14 and No. 19 in this latest ranking.

Cleveland came in at the bottom of the index, ranked No. 38 for its high vacancy rates and a lackluster economic outlook. Las Vegas made the biggest jump, climbing 10 spots to No. 13 for having the highest expected employment and household growth rates among the 38 markets surveyed. Seattle fell the farthest, dropping 18 spots to No. 30, primarily due to economic and employment setbacks.

San Francisco’s ranking is based on strong personal income and the second-highest per capita retail sales figure of the markets surveyed. The report says San Francisco’s vacancy rate is expected to remain relatively stable through 2003, hovering around 5.9% after rising through 2002 and early 2003. Asking rents in the region are forecast to rise by 1% this year to an average of $30.02 per sf by year’s end. “The strong purchasing power of Bay Area consumers has helped maintain a healthy retail sector despite overall weakness in the economy,” says Jeffrey Mishkin, regional manager in Marcus & Millichap’s San Francisco office. “Unlike the office and apartment sectors, retail rents never skyrocketed, so they haven’t experienced a subsequent major correction.”

Oakland ranked in the bottom third of the markets surveyed in terms of projected employment growth in 2003, but a strong demand for space among retailers a projected 50% decrease in retail construction activity kept the market in the Top 20. Average asking rent in Oakland is projected to climb 1.5% this year to $24.56 per sf. San Jose’s low rankings in employment and household growth weighed negatively on the market while strong retail sales per capita and high personal income helped shore up its spot in the middle of the pack. Vacancy in San Jose is forecast to increase by two tenths of a percentage point to 5.5% by year’s end. Rents are expected to remain flat at $26.38 per sf.

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