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Noozhawk: Trend on State Street in Downtown Santa Barbara Is Pop-up Leases for Galleries, Small Boutiques

August 09, 2021

Restoration Hardware building agreement expires in February; businesses seeking smaller spaces

Santa Barbara, California – Published 8/9/2021
By @Joshua Molina, Noozhawk Staff Writer
Restoration Hardware Building Downtown Santa Barbara
The lease for Restoration Hardware on State Street is up in February. Commercial real estate observers are worried that another large property could be vacant on in downtown Santa Barbara. (Joshua Molina / Noozhawk photo)

As decision-makers look to revitalize, reshape and redefine State Street in downtown Santa Barbara, some new trends are emerging, and there’s a bit worry surrounding one of last big properties still with a tenant.

Only two long-term leases were signed in the second quarter of 2021, according to Radius Commercial Group.

“The trend of pop-up leases becoming the norm appears to continue with art galleries and small boutiques filling vacancies,” according to a Radius Commercial Group’s second quarter report. “There seems to be a demand for efficient retail spaces that are under 2,000 square feet, that do not require significant tenant improvements.”

Pu’u Muay Thai leased the old Killer B Fitness space, 1107 State St., and retail store 805 University, 920 State St.

“Both of the long-term leases required limited build out with manageable lease rates, therefore larger spaces at aggressive rates continue to sit vacant,” the report states.

One of the properties currently being watched is Restoration Hardware, 710 State St. The property is managed by SIMA and the terms of the lease are negotiable, according to the listing.

“This prominent building will create an 8,862-square-foot vacancy in the heart of downtown unless a strong tenant emerges before February,” according to Radius.

Still, the number of vacant retail spaces is down from 29 to 23 from the first quarter to the second quarter of 2021. Overall, there are 40 spaces for lease on State Street.

“Our local entrepreneurs are doing some of the most innovative work in our community to respond and adapt to an always-changing world, one made all the more difficult for small business by the pandemic,” said downtown Councilwoman Meagan Harmon. “The growing desire for smaller, multi-use spaces is clearly reflective of that creative spirit.”

Commercial sales jumped to 21 in the second quarter of 2021, another sign that the economy is showing signs of a rebound.

The first quarter of 2021 saw 12 commercial property sales.

“Things are feeling like normal again based on buyer sentiment as well as overall activity,” according to Radius Commercial Group’s second quarter report.

Of the 21 properties sold, 11 were purchase by investors and 10 by owner-users. The largest sale was for $16.5 million, and the total sales of the properties was $90.2 million.

The majority of the buildings sold, according to Radius, were retail buildings, but most are likely to be repurposed as apartment or mixed-use.

Three properties in the Funk Zone sold for $10.35 million; the Lobero Building, 924 Anacapa St., sold for $16.5 million; an office building at 110 Castilian Drive sold for $16.1 million; and 205 Anacapa St., also in the Funk Zone, sold for $4.25 million.

Hayes Commercial Group in its second quarter report noted that the Tienda Ho building, 1105 State St., sold for $2.5 million. The former Sur La Table building, 821 State St, sold for $4.6 million on the second quarter.

“The pandemic has disrupted revenue streams for most local businesses, and made the idea of buying a building seem like too much to take on. But as the economy recovers, potential owner-users will have an easier time obtaining financing, particularly Small Business Administration loans,” according to Hayes Commercial Group. “For those with the means to buy, there are abundant opportunities— both on- and off-market — in the current market.”

Hayes is optimistic about the rest of the year.

“We expect the second half of the year to bring continued growth in sales activity, provided emerging coronavirus variants don’t place too much drag on the economy,” according to Hayes. “There is an unprecedented inventory of 82 properties on the market, and both owner-user and investor demand appears to be growing to address that supply.”

Harmon said Santa Barbara is committed to continuing to help businesses be successful in the downtown.

“We at the city must do everything we can to facilitate their success — in every building on every block downtown,” Harmon said. “That includes, in particular, supporting and promoting efforts toward adaptive reuse of buildings, and streamlining permits and approvals to encourage creative growth, rather than stymie it.”

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