At Redmond Town Center, the motto is, "We make good things happen. " But the one thing the outdoor mall can't materialize is additional...

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At Redmond Town Center, the motto is, “We make good things happen.” But the one thing the outdoor mall can’t materialize is additional retail space.

The 1.6 million-square-foot office, hotel and retail development near Microsoft has a lean 3 percent vacancy rate. In recent months, the center has turned away national apparel retailers because so little storefront space remains.

“Our big challenge right now is trying to figure out … how we gain additional prime retail space,” said Kim Campbell, the center’s senior property manager.

“[Retail demand] has been strong for the last two to three years and is just getting stronger.”

Redmond Town Center isn’t the only retail development feeling the pinch.

With a 5.3 percent retail vacancy rate for the metro area — one of the lowest in the nation — Seattle apparently needs more places to shop.

A national real-estate investment brokerage picked the Seattle metro area — King, Pierce and Snohomish counties — as the No. 1 retail-investment city for the next three years.

The ranking by Marcus & Millichap in Encino, Calif., is based on the metro area’s projected employment growth (the creation of 120,000 jobs by the end of 2008), tightening retail-vacancy rates and personal-income growth.

“Retailers want to be in Seattle,” said Hessam Nadji, Marcus & Millichap’s managing director of research services. “Seattle is a tough area to win public approval [for retail-development projects]. That’s part of what keeps the market healthy.”

Both here and nationally, retail is the only core, commercial real-estate sector that wasn’t overbuilt during the Internet boom — a phenomenon reflected in steadily rising property rents.

Retail-property rents have risen nearly 10 percent nationwide since the onset of the downturn in 2001. That compares with a 2 percent gain for apartments and a 21 percent drop for office properties, the study said.

Marcus & Millichap, meanwhile, forecasts retail vacancy rates nationally to tighten to 9.8 percent by year’s end, with rents to climb 2.5 percent.

In downtown Seattle, the overall retail vacancy rate is nearly half the rate it was three years ago — at 7.8 percent, according to

As vacancy tightens, Marcus & Millichap predicts, local retailers will be facing rent increases topping 3 percent.

The firm, meanwhile, expects a sizable portion of the metro area’s future job growth to come from professional services and trade-related jobs, which would spur personal-income growth.

“You put that all together, and it spells a favorable [outcome],” Nadji said.

That demand has spurred on even small retailers.

At Alhambra, an upscale women’s clothing boutique at First Avenue and Pine Street, a silk charmeuse beaded gown will set a customer back $396.

Boutique owner Shakir Kaymaz said sales have risen for the past two years, although he saw a dip in the spring when gas prices climbed. Even though his shop is in the center of downtown tourism, the majority of his clientele is local, Kaymaz said.

“I think downtown is doing better every day in terms of business,” he said. “I see a positive trend, especially in metropolitan living.”

If downtown Seattle boutique owners have seen an uptick in business, every major mall in the metro area has either added space or has an expansion in the works to meet consumer demand.

Susan Zimmerman, a retail specialist with GVA Kidder Mathews, a major commercial real-estate firm, said she sees more space coming on line in virtually every major suburban Puget Sound-area shopping area, from Alderwood to Kent.

Some of the biggest demand for retail locations comes in city neighborhoods, she said.

For prime street-front space in hot neighborhoods like Queen Anne and Ballard, virtually nothing is available.

“There’s not a lot of options for retailers who want to get into this market,” said Ada Healey, vice president of real estate for Vulcan, Paul Allen’s asset-management company.

Healey, who is overseeing Vulcan’s transformation of the South Lake Union area, is fielding a raft of proposals from retailers but says Vulcan will be deliberate as it decides what to do with the 60 acres it controls in the neighborhood north of downtown.

Healey doesn’t foresee South Lake Union housing a large-scale urban shopping center like Pacific Place, but rather smaller shops and eateries clustered in biotech facilities, apartments, condos and old warehouses.

“It will feel a bit more organic, a bit more homegrown,” she said. Portland’s Pearl District is “a great model.”

Retail experts Dick Outcalt and Patricia Johnson said the market can adjust quickly if the area lacks stores. A strip mall is far less complex to build than, say, an apartment building or office tower.

At Redmond Town Center, Campbell said, they are weighing when and where to add retail space. The center has tossed around ideas, from a mixed-use to an all-retail development.

If market demand persists, the center will move forward. “There definitely is an issue of inadequate supply to meet the demand,” Campbell said.

Monica Soto Ouchi: 206-515-5632 or

Tom Boyer: 206-464-2923