Imagination Toys owner David Swanson said his business has faced stiff competition from the Targets and the Wal-marts, but it was a 40 percent hike in the rent that finally forced him to close his business after 10 years in Ballard.

It was a familiar situation for Swanson. He closed another toy store in Wallingford Center last year for the same reason.

"When (the neighborhood) got to be popular the rents soared and businesses left," said Swanson.

Local realtors say rental rates for commercial and retail properties have been increasing in Ballard for the last few years and a lot of that has to do with Ballard's growing popularity.

"Basically, it's supply and demand," said Greg Stamolis, a commercial and development salesperson with Windermere Real Estate in Ballard.

The price of homes can also have an effect on commercial rates. The average retail space in Ballard is renting at $15 to $24 per square foot. Homes are selling at an average price of $375,000 to $450,000, which is reasonable compared to other Seattle neighborhoods, said Stamolis.

"They go hand in hand," he said. "Home and rental prices in Seattle parallel the price of commercial spaces. As residences get more expensive the businesses tend to cater to that."

Dennis Counts, the leasing agent for the Imagination Toys property, said housing prices have jumped fairly significantly in Ballard, changing the demographics of who moves in. This tends to reflect the types of businesses that open and close, he said.

"Ballard is the new Fremont," said Counts, who manages properties all over Seattle. "It's a terrific market right now. Ballard is no longer the end of the known universe."

Barry Hawley, a Ballard commercial and industrial real estate broker, said Ballard's business future is bright. But he predicted that retail shops would eventually move towards the industrial area of Ballard, where the rent is cheaper and the parking is better.

"The market forces create the rental rate," he said. "None of it would matter if people don't like the area. The market forces are very strong in Ballard right now. It's a hot area and more young people are moving in," Hawley said.

Commercial and retail rates in most neighborhoods fall into three categories, said Hawley. Rates in buildings that have been owned by the same person for a long period of time tend to be more lenient. Investors that have recently bought a building or a space need to keep the rent higher to justify their investment. But any new building will be the most expensive to rent, such as retail spaces in new condominium developments. Those can go for about $24 per square foot, per year, he said.

Right now, the hottest place for a Ballard business to be in is on Ballard Avenue, where the rent and the demand are high. The location, close to many popular bars and restaurants, is part of what makes it so attractive to business owners, said Hawley.

"It has a quality that business owners want," he said.

Market Street is catching up in terms of rental rates, but Ballard Avenue is still the highest, with rates running from $20 to $24 per square foot. The average retail or commercial space on Market Street goes for $15 to $18 per square foot.

"But there is pressure on those rates," said Hawley.

Beth Miller, executive director of the Ballard Chamber of Commerce, said this trend has the potential to change the community, in both good and bad ways. Places that charge higher rent usually house businesses with pricier merchandise. The chamber worries that if too many of those businesses come to Ballard, it will attract more shoppers from outside of the neighborhood, forcing out local consumers that can't afford the more expensive shops.

"Ballard could become nothing but a tourist attraction," said Miller. "We're already seeing a lot more restaurants and stores that have higher ticket items."

If rental rates continue to escalate, large chain stores that are not locally owned may be the only ones able to afford the neighborhood, said Miller.

"It would be a very sad thing," she said, noting that Ballard prides itself in its many locally owned businesses that offer a wide range of services.

Residents could take their money out of the area if their needs aren't met in the Ballard business market, said Miller.

In the last few years, Swanson said he's noticed more shoppers on Market Street where his toy store has been located for the past 10 years. But it hasn't helped his business.

"It's kinda about time for us to go," he said.

Stamolis, a Ballard resident, said he'd miss his frequent visits to Imagination Toys because it added a certain flavor to the community.

"It's a real disappointment that it's closing," he said. "I'd rather have a reasonably priced toy than a $300 purse."