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PHOENIX-Rental rates for retail space in the Valley are expected to increase 3.8% to $17.79 per sf by the end of the year, the strongest gain since 2000.

According to Marcus & Millichap Real Estate Investment Brokerage Co.'s most recent report, retailers are rushing to meet the anticipated demand from a population growth of more than 500,000 residents over the next five years. As retailers open stores, declining vacancy will push rental rates. "Developers and retailers continue to follow the growth path, which now extends to the far reaches of the area," says David Wetta, the managing director in Phoenix for the Encino, CA-based brokerage house.

Marketwide vacancy is forecast to decline to 8.5% by year's end in the 118-million-sf inventory. Researchers say the Southeast Valley and far western submarket will receive the bulk of retail attention as areas like Gilbert, Chandler, Goodyear and Avondale brace for explosive residential growth. The Tempe/South Phoenix submarket's 4.5% vacancy is the lowest in the region, with North Scottsdale and Paradise Valley next in line at slightly less than 6%.