SAN FRANCISCO-The San Francisco and Oakland retail markets are performing well and San Jose is in recovery, according to the latest retail research report from Marcus & Millichap Real Estate Investment Brokerage Company. The national report includes an index that ranks 40 retail markets based on a series of 12-month forward-looking supply and demand indicators. In the latest ranking, Oakland joins San Francisco in the top 10 and San Jose slides to the middle of the pack. M&M’s San Francisco area regional manager Jeffrey Mishkin says local retail owners “can breathe a sigh of relief” knowing that they survived the downturn. “The pool of buyers in 2004 will once again outstrip the number of available properties, but transaction velocity will meet or exceed 2003′s level, when 80 retail transactions were recorded in the San Francisco MSA, ” says Mishkin. “ Single-tenant net-leased properties will remain a darling among investors although multi-tenant properties are in high demand.”Steven Seligman, regional manager of M&M’s Palo Alto office, says investors will continue to target opportunities in San Jose as well. “Retailing in San Jose has been supported by the local housing market, which has remained remarkably resilient considering the dot-com bust, waves of job losses and the exodus of area residents searching for opportunities outside of San Jose,” says Seligman, “The increase in housing values has helped buoy consumer confidence, and rising home equity has resulted in healthy retail spending.”In the retail index, San Francisco moved up one place from last year to take the No. 5 spot by having the lowest completions and highest personal income in the survey, as well as expected benefits from increasing tourism. Oakland jumped into the top 10 at No. 10, rising four spots, as construction remains low relative to the market’s size, offsetting low to moderate scores for employment and household growth. San Jose dropped four places to No. 23 with low vacancy and completions offset by expectations of limited household creation and job growth.With regard to employment, the report predicts total employment in San Francisco to grow by 1% this year while employment in Oakland and San Jose grows by 1.1%. Concurrently, new construction will be subdued in all markets this year, with 213,000 sf scheduled for delivery in San Francisco, 900,000 sf in Oakland and 56,000 sf in San Jose. “Construction will be driven by redevelopments and rehabilitation of old, obsolete centers and commercial facilities,” according to the report. Retail vacancy in San Francisco is expected to drop 40 basis points in 2004 to 5.5%, according to the report, while vacancy in Oakland is expected to end the year at 7.8%. San Jose’s vacancy rate is expected to ease 20 basis points in 2004, to 5.3%. Average asking rents in San Francisco are expected to close the year at $30.77, pulled up by newer, small unanchored centers, some of which are commanding lease rates approaching $40 per sf. In Oakland, the average rent should increase by 2.5% to $25.17 per sf, with rents remaining highest in Central Contra Costa County. Average rents in San Jose should post an increase of 2.5% to $27.04 per sf, with North County rents pulling up the average with a 3% jump to approximately $28.70 per sf. On the investment front, retail values in San Francisco are expected to rise 3% as investors drive sales and values in the strip center sector of the market for a lack of anchored center opportunities. In Oakland, the retail opportunities will be tired or under-retailed areas being developed or renovated. In San Jose, buyer interest will likely be concentrated in areas surrounding new development or properties undergoing or planned for renovation, such as Westfield Shoppingtown Oakridge in south San Jose, the Great Mall in Milpitas and properties located on both sides of the Westgate Shopping Center district in San Jose.

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