Commercial brokers in Santa Barbara County are putting money in the bank, Ventura County brokers are waiting for some big deals behind the next curtain and San Luis Obispo County is betting heavily on housing.
In Santa Barbara County, one of the biggest trends of 2019 was the demand for office space in Goleta, a trend that has impacts on housing in West Ventura County, the Santa Ynez Valley and Santa Maria.
Both Radius Group Commercial Real Estate and Hayes Commercial Real Estate have tracked the vacancy rates in the area, and low vacancy rates have triggered increased sales that are driving the Golea market into 2020.
Two recent large sales include the lots at 125 and 175 Cremona Drive in Goleta, which Majestic Asset Management purchased for $24.5 million through broker Hayes Commercial Group, but the year has been studded with sales like those.
An investor bought 6.9 acres at 6300 Hollister Ave., including a 106,309-square-foot office/R&D facility through Hayes in the third quarter, and real estate software provider Yardi purchased the Goleta property it was renting at 420 Fairview Ave. Radius said the $22.8 million sale to Yardi was the largest commercial sale of the second quarter.
The sales are part of a pattern which has pushed office space vacancies in Goleta, currently at 4.9 percent, below Santa Barbara, at 6.4 percent, for the first time in memory, said Gene Deering, principal with Radius Group Commercial Real Estate.
“This is the hottest I’ve ever seen the market,” Deering said. “If you’re leasing a full building a few years before its being built, that’s a sign of a very hot market.”
At 3.9 percent, the Carpinteria office market still has less space available than either Goleta or Santa Barbara. Industrial rates in Santa Barbara and Carpinteria are also still below 2 percent, with Carpinteria’s industrial vacancy rate at a stunning 0.2 percent.
The lack of room means more people will look to nearby communities like Goleta, where the industrial vacancy rate is 6.2 percent, and Deering expects industrial vacancy rates there to also decrease in 2020.
Lower all-around vacancy rates mean rents are rising are Goleta, and it’s not the only area where prices are rising. With communities like Montecito still rebuilding from natural disasters, construction crews were already tied up, but the flurry of sales and remodeling projects means there’s an even greater demand for the supply there is.
Construction costs are up 30 percent, Deering said, which will raise the price tag on current and upcoming projects. The price and a lack of availability may delay or even stall planned projects of all sizes in the area.
“(It) impacts the small office remodel the same way it impacts the group looking to build an office out in Goleta,” Deering said.
Another aspect which might delay future projects is a widening gap in the bid/ask spread. Liam Murphy, a broker and principal with Hayes Commercial Group, has seen properties take longer to finalize because of different expectations on the parts of buyers and sellers.
“People who are selling property are asking for a high price,” Murphy said. “People who are looking to invest are looking for a good deal.”
In downtown Santa Barbara, there’s also a lot of buzz about non-retail uses for spaces in and around State Street. Both Deering and Murphy have seen interest around turning some of the empty spaces on State Street into mixed use communities, and Deering is seeing rents soften, which should help encourage new development in the area.
Other State Street areas which might see mixed-use development include the former Sears location at La Cumbre and the Macy’s building in Paseo Nuevo. Of the two, Murphy expects the La Cumbre location to be a bigger project, but neither of the sites have a definitive plan or buyer yet.
When it comes to Ventura County, a breakthrough of sorts took place near the end of the year in Simi Valley when the Farmer’s building, long vacant, was sold to an Orange County developer who plans to redevelop the site into homes, townhomes, commercial and retail. The Enclave, as the site will be called, still may face calls for more rental housing.
In Thousand Oaks, the question is whether the city will take advantage of large bioscience research facilities being developed and add significantly to its housing element.
In San Luis Obispo, the San Luis Ranch project, viewed by many as key to future expansion of the area’s growing tech sector, will offer its first homes for sale in spring. On the horizon is the Villagio senior housing project, a 600-home retirement community that would be a first for the region. That project alone is expected to result in $377 million in new construction spending; an environmental review is underway.
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