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Santa Barbara News-Press: South Coast commercial real estate seeing some gains

October 26, 2012

South Coast commercial real estate seeing some gains

Mark Schniepp, Director, California Economic Forecast
(Above) Dr. Mark Schniepp, director of the California Economic Forecast, speaks about the South Coast real estate market Thursday. (Below) About 300 people attended the fifth annual Radius Real Estate & Economic Forecast. MIKE ELIASON/NEWS-PRESS
Santa Barbara, Calfornia – Published 10/26/2012
Santa Barbara News-Press
South Coast commercial real estate seeing some gains
by Steve Sinovic, News-Press Staff Writer

The commercial real estate market in South Santa Barbara County is in a more stable position in 2012 compared to recent years, according to local real estate professionals.

The correlation between rising consumer confidence, employment opportunities, tourist numbers and home values on the area’s office, retail and industrial sectors – both leases and sales – was discussed at length Thursday morning at the fifth annual Radius Real Estate & Economic Forecast, which drew approximately 300 people to Fess Parker’s Doubletree Resort.
According to an executive summary that accompanied speakers’ comments, commercial real estate fared a little better than its residential counterpart in the recession due to the fact that the South Coast – constrained by geography and stringent planning – has a relatively small inventory of office, retail centers and industrial buildings compared to demand.

“Retail (activity) continues to be the face of commercial real estate” to the general public, said Brad Frohling, a principal at Radius Commercial Real Estate & Investments who offered a leasing roundup and forecast.

The Santa Barbara retail market has continued to contract, he said, and the vacancy rate now stands at 1.6 percent.

Notable transactions in the third quarter included Fresh Market grocery, which leased approximately 30,000 square feet at 220 N. Milpas St. formerly occupied by Scolari’s, and Sit N Sleep mattress store, which leased approximately 8,000 square feet on the 300 block of State Street adjacent to REI.

With demand rising for smaller State Street retail spaces, look for prices to continue rebounding, Mr. Frohling said.

In Goleta, the highlight of the third quarter was BevMo, which leased 9,300 square feet in the Camino Real Marketplace, he said. The office vacancy rate is at 6.5 percent, only just slightly less than the high point of 2008, right before financial markets began to crater.

Radius representatives said that there was no major office leasing news to report in the Santa Barbara office market for the third quarter. There were limited showings, especially in the 1,500 to 3,000 square foot range, because that size – usually for a business of 2-5 people – has not returned in force.

The recession has forced many former office tenants to work from home as they try to cut overhead costs.

Available industrial space in downtown Santa Barbara is virtually nil, according to the Radius executive summary.

On the sales end, the hottest product is multi-family housing. This kind of investment is much in demand in a region that has seen declining vacancies and higher rents, according to the Radius report.

“A large-scale transaction on the South Coast is a 10-unit apartment building,” said Steve Golis, a Radius principal and co-founder. “Very few come on the market.”

He said he has been besieged by out-of-town investors who ask him to find them a deal.

“They say, ‘My money needs to make money and (owning) apartments can do that,'” Mr. Golis said.

Mark Schniepp, an economist and director of the California Economic Forecast Project, said the South Coast economy is seeing more positive trends than negative ones. A high point is an uptick in hotel occupancy numbers.

A low point was the recent increase in gas prices, a volatile situation in California since a higher grade is mandated for the state’s drivers.

One of the themes in his talk related to trends in the local labor market.

“Job creation in Santa Barbara County is getting better, but not enough to offset what we lost in the recession,” Dr. Schniepp said.

Many of the new jobs that have been created are by folks now working as independent contractors or in temporary positions, such as administrative support and customer service jobs.

“We simply cannot keep pace” with the numbers of people entering the workforce, said Dr. Schniepp, referring to 20-somethings who have graduated from the region’s high schools and colleges in record numbers. “Our current unemployment rate is stubbornly high at 7 percent because of this demographic.”

Job searching is much easier for those with technical and high-level health care skills.

“Technology is the principal engine of growth” in today’s job market, especially for those working for Web-based companies or in information technology, Dr. Schniepp said.

In previous economic recoveries, good-paying construction and manufacturing jobs led the way.

“These sectors will come back a tiny bit,” in Santa Barbara County, he said. “The local job market will never be like what it was.”

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