The Twin Cities area has seen a steady increase in empty storefronts in the last year, and the situation isn't likely to improve anytime soon, according to a report released this week by a national commercial real estate services firm.

The report by Marcus Millichap said the vacancy rate for retail space is approaching a 15-year high. By year end, the vacancy rate is forecast to be 10.3 percent, compared with 8.7 percent in 2008 and 7.4 percent in 2007. As a result, rents for retail space, which are already down from last year, are expected to retreat significantly. Asking rents are forecast to finish 2009 at $17.52 per square foot, an annual decline of 2.5 percent.

The rise in shuttered storefronts here mirrors what's happening around the country, according to Solomon Poretsky, manager of Marcus & Millichap's Twin Cities regional office.

Beyond the current recession, which has left consumers shopping for little more than the basics, Twin Cities developers kept building retail centers, even as the economy was slowing. About 800,000 square feet of retail space was added to the market last year, and about 895,000 square feet is expected to be completed this year.

Porestsky said work on much of the newly built space began before the seriousness of the economic downturn became clear. "We see a lot of unanchored neighborhood strip mall space unfilled," he said. A lot of it was built northwest of the Twin Cities stretching to towns like Rogers and was based on expectations of a continuing boom in housing. "It's a market that went from superhot to zero," he said.

Closer to the Twin Cities core, much of the newly built space will be in St. Louis Park at the West End mixed-use development currently under construction by Duke Realty Corp. Richard Grones, founder of Cambridge Commercial Realty, an Edina firm that specializes in the retail market, said about 70 percent of the project's retail space is believed to be leased, with restaurants accounting for much of it.

Grocery stores also account for much of the space likely to be added in the coming year, including a Cub and an Aldi market in St. Paul and Wal-Mart Supercenters in Apple Valley and Woodbury.

Other area retail experts said the increased overall vacancy rate is due partly to the past year's closings of several large-scale retail outlets such as Circuit City, Linens 'N Things, Cost Plus World Market and Sportsman's Warehouse. Grones said the situation could get worse as more auto dealers close.

"A couple years ago when CompUSA closed stores here, Staples came in and filled some of the space," said Mike Sims, principal at the Minnesota office of Mid-America Real Estate Group. "That's not happening now."

There are a few exceptions, such as deals that saw a Nordstrom Rack take space in a former Linens 'N Things in Maple Grove and a Trader Joe's take over a former Cost Plus World Market in Minnetonka. Grones said LA Fitness has taken over two vacant auto dealerships in Apple Valley and Hopkins and is renovating another one in St. Louis Park.

The report said retail landlords' problems are being compounded by property taxes based on valuations when the market was still at its peak. The high tax bills are making it difficult for property owners to trim rents or offer other concessions to retail tenants that are struggling to hang on in the weak economy, Poretsky said.

Susan Feyder • 612-673-1723