The report was prepared by researchers at Marcus & Millichap Real Estate Investment Brokerage Co. A glut of new construction and slow leasing activity will push retail vacancy rates next year to 6% from today's 5%, the report says, while rent growth disappears as owners compete for the dwindling number of expansion-minded tenants.

There won't be an all-out crash like the one that accompanied the early 1990s recession, according to Stephen Stein, Marcus & Millichap's regional director. But "the market will see definite softening as local retailers struggle through the next year and developers continue to add more space than the market can absorb," he says.

Most retailers are already expecting slow holiday sales, Stein adds. The ports of Los Angeles and Long Beach saw a steep 10% drop in traffic from major retailers between July and October, he says, which indicates they long ago cut back their holiday orders to avoid over-stocking and the need to offer deep discounts to reduce inventory levels.