Pacific Coast Business Times: Pent-up demand drives surge of deals on Chapala Street
With highly coveted square footage virtually unavailable on State Street in downtown Santa Barbara, many companies trying to stay in the market are gobbling up space on the nearby Chapala Street corridor.
There have been 29 deals on Chapala Street in the past 18 months, with 15 sales and 14 leases, according to data from Radius Group Commercial Real Estate & Investments. Seven of those deals closed in the first quarter of the year, on par with with the eight deals that closed in the same period in 2013.
“Chapala has always been an attractive corridor. Activity was slowed down by the recession, but interest in space there started before the recession,” said Austin Herlihy, a broker with Radius who has negotiated a number of the deals on Chapala. “Prior to that it used to be a ghost town there.”
Credit for the Chapala corridor surge goes to the emergence of Santa Barbara’s Funk Zone, a food, wine and art hotspot that continues to grow, and the development of a handful of multifamily residential projects, he said.
At 517 Chapala St., a fully entitled eight-unit condo project recently went into escrow. “We could not sell that type of project five or six years ago,” Herlihy said. The 11,500-square-foot property was listed for about $2.7 million, according to Loopnet.
And most of the condo units at 401 Chapala St., known as Sevilla, have also been sold.
Music gear maker Sonos has leased more than 30,000 square feet of office and R&D space on Chapala Street. Further up the road, the new Santa Barbara Public Market and adjacent Alma Del Pueblo condominiums are generating a lot of buzz and foot traffic.
All of that activity has been instrumental in driving interest to the corridor, and that’s fueled even more leases for infill office space from other tech industry firms, commercial real estate insiders say.
Over the past 15 months, tech-related companies including Sonos, Tapjoy, Invoca, Affinity Biosensors and Anasys Instruments have accounted for approximately 32,888 square feet of the 43,709 square feet of commercial space leased. Sonos and Tapjoy accounted for more than 10,000 square feet of the 14,200 square feet leased in the first quarter of 2014.
The leasing of the various-sized spaces has had a big impact on vacancy in Santa Barbara’s overall downtown core. At the beginning of 2013, the downtown vacancy rate was 6.3 percent. The most recent figure sits at roughly 4.3 percent, according to Radius data.
Declining vacancy has pushed gross asking rates to $2.85 per square foot, the highest level since 2007.
Asking rates remained relatively flat between 2009 and the beginning of 2013 but have been on a steep upward trajectory since then. For neighboring markets, that could be good news. Radius brokers believe that higher rents in Santa Barbara could help drive interest in lagging ancillary markets as some tenants look for cheaper space in Goleta and Carpinteria.
“The first quarter of 2014 was undoubtedly the strongest first quarter we have seen in three years. The 23 commercial sales recorded easily trumps the first quarter of 2012’s 11 deals and the first quarter of 2013’s 14 transactions,” Vince Coronado, Radius’ director of marketing and communication, said in an email. “If this pace continues — with inventory remaining low and investors poised to pounce — 2014 could produce the greatest number of commercial sales in the South Coast in more than 17 years.”
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