The report, by Palo Alto-based Marcus & Millichap, ranks 35 retail markets nationally on the basis of indicators that predict supply and demand of retail space for the coming year. Among the indicators are forecasted employment and household growth, vacancy, construction, personal income, new home construction and rent growth.

"Personal income and household growth, two primary drivers of retail sales, are given heavy emphasis in the model," the report says.San Diego, which ranks behind only Washington, D.C. in the Marcus & Millichap study, remains a strong retail market on the basis of continued job growth, rising rents, and a growing population, the report says.

Despite the upbeat tone of the report, it notes that vacancies rose about half a percentage point this year in San Diego retail space, reaching 5.2%. It blames the rise on weakened economic conditions, but says vacancy rates remain historically low.