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PHOENIX-The future of Phoenix and Tucson’s retail market is looking brighter as both cities move up on the rankings of Marcus & Millichap’s National Retail Index.

The index, which ranks 38 retail markets based on a series of 12-month future supply and demand indictors, ranks Phoenix 18, up six spots from last year’s ranking, and places Tucson at 17 on the list, five spots higher than the city’s position last year. An expected turnaround in employment combined with a decline in new construction and steady rent increases all were instrumental in this year’s improved outlook for the cities.

Capturing the top spot as the hottest retail market in nation for the second year in a row was Washington, DC followed by Orange County, CA, San Diego, Boston, and Fort Lauderdale, FL. High vacancy rates and a bleak economic outlook contributed to Cleveland’s ranking at the bottom of the index.

Contributing to Phoenix’s jump in the standings was an expected 1.7% growth in employment and a decline in retail construction, which fell by more than 70% in 2002, with only 1.7 million sf added to inventory. Construction activity is expected to remain stable for the balance of this year, with the delivery of 1.8 million sf and allow vacancy rates to decline.

A booming housing market and a slowdown in new construction also fueled Tucson’s rise in the rankings. Although completions will quadruple during 2003, the majority of that space is pre-leased, which will keep vacancy rates from increasing.

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