It’s a good time to invest in apartment complexes throughout the Tri-Counties — if investors can find available space or property on the market.
Steve Golis, a principal at Santa Barbara-based Radius Commercial Real Estate & Investments, expects rents to increase and vacancy rates to remain low. Apartment demand continues to grow as the number of buyers, foreign and domestic, continue to far outweigh sellers.
But as of now in Santa Barbara County, there are only six multifamily developments with five or more units for sale, Golis said.
“The forecast is for less and less folks who want to own homes and would rather move to the flexibility of renting, and that doesn’t seem to be changing anytime soon,” he told about 300 people on Oct. 30 over breakfast at the recent Radius Real Estate & Economic Forecast at the Fess Parker Doubletree Resort in Santa Barbara. “Apartment demand is enormous right now.”
Even though demand is strong, there have only been 19 multifamily sales year-to-date on the South Coast compared to 30 last year.
“The reason this number is a little lower is not because of lack of demand, but absolute lack of inventory along the Central Coast,” Golis said. “It’s a great time to be an apartment owner. I don’t know how (vacancy rates) will go lower, but they probably will.”
Isla Vista has the lowest vacancy rate in the region at 0.24 percent, anchored by the recent sale of the 208-unit portfolio of Tropicana Gardens, Tropicana Del Norte and Tropicana Villas, which the University of California Santa Barbara bought in June for $156.4 million.
Apartment vacancy rates average around 0.6 percent on the South Coast, about 2 percent in North Santa Barbara County, just more than 2.1 percent in West Ventura County and a little less than 2 percent in San Luis Obispo County.
The average rent for a one-bedroom apartment in Santa Barbara is $1,518 a month, up from $1,383 a year ago.
“There are a lot of investors who are looking for too low of product,” Radius founding partner Steve Brown said. “They are confident in the marketplace and stability. They see the U.S. and particularly Santa Barbara County as a safe haven.”
The city’s increased density plan has been a catalyst for new development, which allows developers to build up to 63 units per acre instead of the usual 35. There are 244 units in different stages of the pipeline in Santa Barbara, including an 89-unit apartment complex at 3885 State St.
Tri-county banks are competing for multifamily loans, which hasn’t always been the case, said Ken Jacobsen, executive vice president at American Riviera Bank.
“It’s the most activity I’ve seen in 30 years,” Jacobsen told the Business Times.
Outside of housing, South Coast office and industrial space is also scarce.
Sonos has made a big dent in the Santa Barbara office market, occupying 132,000 square feet in six downtown properties, most recently leasing the former Montecito Motors location at 25 W. Cota St.
Radius principal Brad Frohling expects the current 20.7 percent Carpinteria office vacancy to drop now that the 32,000-square-foot space at 1000 Mark Ave. has been leased up and Procore plans to expand. A senior care facility is also moving into 52,000 square feet at 5464 Carpinteria Ave.
On the retail side, the under-construction La Entrada Hotel and retail project on Lower State Street will bring nearly 22,000 square feet of new retail space.
Hollister Village at 7000 Hollister Ave. in Goleta is expected to be completed next year. It will feature 76,000 square feet of retail space anchored by Smart & Final Extra and about 266 apartments units.
California’s overall economy, real estate included, is growing faster than the country’s, but the lack of affordable housing could hold it back, said keynote speaker Jerry Nickelsburg, UCLA Anderson Forecast’s senior economist.
“When we think about economic policy, this kind of uneven recovery is really manifested in the change from a manufacturing economy to an information economy,” he said. “We’re at the forefront of that.”
Technology, innovation, homebuilding and an emphasis on energy will continue to drive California’s growth, Nickelsburg said.
California leads the country in patents granted and venture capital, according to the Economic Development Collaborative of Ventura County. But California’s housing costs are so high, businesses along California’s coast may find it challenging to recruit or retain quality employees, Nickelsburg said.
“We’re not going to be able to take care of the entire problem of affordability,” he said.
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Institution Ale's Ryan Smith and son Shaun Smith at the family's new State Street location. Photo: Paul …
Summary of market insights and analysis from Q2 2019 South Coast commercial sales and leasing activity: Download the complete report here …