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Pacific Coast Business Times: Big leases drove South Coast Commercial Market in Q2

August 03, 2012

Big leases drove South Coast commercial market in Q2

Santa Barbara, Calfornia – Published 8/3/2012
Pacific Coast Business Times
Big leases drove South Coast commercial market in Q2
By Marlize van Romburgh

With several major development projects underway and healthy leasing activity, south Santa Barbara County’s commercial real estate market finished the second quarter on an upbeat note.

Vacancy rates on the South Coast are generally down, and while investment activity has slowed, projects such as the long-dormant La Entrada hotel development on lower State Street are expected to add new spark when they come online.

That was the view from two separate mid-year market reports by Hayes Commercial Group and Radius Commercial Real Estate Investments.

Projects such as the beachfront La Entrada, which starts off-site construction later this year, as well as the mixed-use Alma Del Pueblo food market and condo project behind the Arlington Theater “will have significant impact on the market,” Radius said.

On the leasing side, Radius noted that the vacancy rate in Santa Barbara’s office market fell from 6.2 percent in the first quarter to 5.8 percent at the end of June. Many of the leases were on larger spaces, with 10 of the 13 leases during the quarter for spaces of more than 3,000 square feet.

Goleta’s office-space vacancy dropped from 10.2 percent to 8.3 percent during the quarter. Radius noted that firms such as Brown & Brown Insurance, which leased 12,600 square feet at 1 S. Los Carneros Road, are choosing to relocate from the pricier Santa Barbara office market to relatively more affordable Goleta.

Carpinteria saw its office vacancy rate drop from 17.5 percent to a much healthier 13.1 percent, helped along in large part by online education company, which leased an additional 19,100 square feet in the city at 1001 Mark Ave.

Vacancy in Goleta’s industrial space market climbed from 7.5 percent to 8.5 percent. The highlight lease in Goleta was from Kaai Soraa, which leased 12,600 square feet at 495 S. Pine Ave., the largest industrial lease in the city.

Vacancy in Carpinteria’s industrial market climbed, from 5.1 percent to 7.1 percent, reversing a significant decrease experienced in the first quarter. Some of the largest available industrial spaces in the city include 26,300 square feet at 5201 Sixth St. and 19,100 square feet at 6398 Cindy Lane, vacated by Giata Designs. Gigavac, which makes contactors and high-voltage relays, signed up for 39,100 square feet at 6382 Rose Lane in Carpinteria, marking the largest industrial lease in the city during the quarter, according to Radius.

The retail sector, centered along Santa Barbara’s State Street, was the most active sector in the South Coast leasing marketing during the quarter, Hayes said in its report.

The boom in retail leases has brought Santa Barbara’s retail vacancy rate below 2.5 percent for the first time since 2009, Hayes said, and lease rates have jumped 14 percent since the end of last year. The largest downtown lease was to Panera Bread, which has signed up to open a 5,753-square-foot restaurant in the long-vacant space at 700 State St. formerly occupied by Left at Albuquerque.

Helped along by low interest rates, the investment market remains relatively robust. In its market report, Hayes Commercial noted that sales transactions on the South Coast are down 21 percent over last year but it expects about $250 million in investment activity this year.

Both Radius and Hayes noted that more than half of the sales deals so far this year have been to owner-users. One of the largest such transactions was MedBridge Development’s purchase of 121 Gray Ave. in Santa Barbara. The 19,429-square-foot sale is the 14th sale in the Funk Zone in as many quarters, Hayes said.

Another notable investment in the second quarter was the purchase of 220 N. Milpas St., formerly occupied by a Scolari’s grocery store. The property was bought in April by investors for $11 million, according to Hayes. The buyers have since signed a lease agreement with The Fresh Market.

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