Retailers brace for space crunch as business booms.

Marcus & Millichap Real Estate Investment Brokerage Company recently released its National Retail Research Report for 2006, which indicates a strengthening local economy, including a robust housing market and growing tourism volume, will underpin a strong retail property market in 2006.

Also included in the report is the firm's annual National Retail Index (NRI), a snapshot analysis that ranks 42 retail markets based on a series of 12-month forward-looking supply and demand indicators.

New York City-Manhattan climbs four places this year to No. 4.

"The local retail sector continues to show steady improvement as the economy generates job growth," notes Mitchell R. LaBar, a managing director of Marcus & Millichap and regional manager of the firm's Manhattan office.

"Strong retailer demand for space will help tighten vacancies further in 2006."

Among the report's most significant findings in the Manhattan market:

* Employers are projected to add 14,000 jobs this year, a 0.6 percent increase. The financial activities sector will account for approximately 3,100 of the positions.

* An estimated 100,000 square feet of retail space will come online in Manhattan. Not included in the total are several large projects in the outer boroughs, including redevelopment of the Bronx Terminal Market and the Atlantic Yards project in Brooklyn.

* Job growth and an expected increase in tourism will boost demand for retail space. Vacancy is forecast to decrease 40 basis points to 4.2 percent this year.

* Improving market conditions will allow owners to boost rents. A projected 5.5 percent increase in asking rents will place the market average at $109.25 per square foot.

* Retail property prices are being bid up by aggressive bidding. The median price of multi-tenant properties has jumped 11 percent so far in 2006 to $489 per square foot.

The 2006 edition of M&M's National Retail Index displays some of the most dramatic shifts in market positions seen in several years.

The reason for this is two-fold, according to M&M analysts:

The nation's economic recovery cycle has been bifurcated, with those areas quick to recover now falling into a more sustainable growth pattern, and markets that lagged the recovery are experiencing accelerated economic growth over the forecast horizon. Secondly, the red-hot housing market has begun to cool, leaving those areas that have recorded a large discrepancy between home price appreciation and income growth exposed to a greater risk of a market correction, which would adversely affect consumer spending.

San Diego and Orange County (Calif.) maintained their 1-2 rankings in the NRI from last year due to strong retail market fundamentals.

Oakland (Calif.) jumped seven places to No. 3. New York City-Manhattan ranked No. 4, and Phoenix rounded out the index's top five MSAs.