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Santa Barbara News-Press: Economic recovery expected to lag

March 19, 2021

Economists, real estate experts discuss South Coast predictions for 2021

Santa Barbara, California – Published 3/19/2021

In a new year with a new president and a new vaccine, the state of the pandemic and its impacts on the economy are much different from a year ago.

Local real estate experts and Radius principals Gene Deering and Brad Frohling, along with economist Dr. Mark Schniepp with the California Economic Forecast, unpacked the current state of the commercial real estate market and the greater economy in a Zoom webinar Thursday morning.

Mr. Deering shared that the sales market on the South Coast has been “surprisingly normal,” with one change being risk and how investors look at risk.

“If you have an office or retail building with some vacant space or space becoming available, you’re going to see investors take a closer look,” he said during the webinar.

The real estate expert pointed to three different buildings that were sold twice in a short period, including the property on 225 State St., 5511-5571 Ekwill St. in Goleta and others.

This year will likely be a normal year on the commercial sales front, according to Mr. Deering, since “we didn’t see that COVID discount that a lot of people expected.” He also mentioned some new multi-family housing projects that were developed, such as the 41-unit building at 835 E. Canon Perdido St., the 22-unit 414 Chapala St. building and the 26-unit building at 226 E. De la Guerra St.

Mr. Frohling discussed the state of leasing, saying, “In summary, the main sectors are industrial, office and retail. Industrial is stable, office is a bit sluggish, and retail is anemic, needing some life.”

Regarding industrial, he said lease rates will likely remain level for the year.

In addition, Mr. Frohling said most office tenants are moving toward consolidation versus growth. But he noted the conversion of retail to office is happening now, including the Macy’s building, Sears and the Forever 21 building, which total more than 400,000 square feet of buildings.

“Is that an opportunity or is it a burden? Maybe some of both. … We have these larger buildings where companies can grow downtown, so I think more than it being a burden, it’s an opportunity if we could land some tech companies moving out of congested cities,” he said, adding that converting retail buildings into hotels or apartments is not always feasible.

He also noted that many developers are “better off tearing down those buildings and rebuilding them.”

Regarding the new wave of employees working from home, Mr. Frohling said the idea that working remotely is the new norm isn’t necessarily accurate.

“This idea that we can work from home and be in our bathrobes until 10 a.m. — it has not been productive. Most companies want to get the workforce back into the office as soon as possible for productivity,” he said.

The Radius principal also shared his thoughts on the State Street promenade, saying he thinks it should only be closed off to vehicles from Haley to De La Guerra St.

“What we have closed right now is too much and it’s not a great use of the space,” Mr. Frohling said. “Right now, downtown does look a little bit like a yard sale.”

Dr. Schneipp then provided a comprehensive summary of COVID-19’s economy, and “what to expect in 2021 after a horrendous 2020.”

In his presentation, he touched on notable statistics today: 9.5 million people in the U.S. are not working today who were working a year ago; barely 40% of all K-12 students are attending school normally; the stock market is at all-time record highs; 17 states have opened nearly entirely; the nation is out of the “dark winter” predicted by health officials back in December. But he noted the nation is now facing another alleged surge of the pandemic.

The economist said the nation’s immediate concerns are another surge, ongoing business restrictions even as infection rates decline, large public events not being permitted, schools remaining closed, customer reticence and fans at sporting events being prohibited.

“Despite a slow start, we expect a surge in economic activity March through April, nationwide,” Dr. Schneipp said.

However, California is lagging, with the second highest unemployment rate in the nation, not far behind Hawaii. Job creation has lagged more than other states, with 30% of jobs lost recovered since April compared to the country’s 58% recovered jobs. California is also the most restricted state in the nation.

Zooming in on Santa Barbara County, Dr. Schneipp said, “The labor-market fallout has been severe.” The unemployment rate is 7.7%, with the South Coast at 5.9% and North County at 10.6%.

But he noted, “The recovery is sustainable as long as the vaccines are effective or herd immunity sets in.”

“California will largely track movements in the U.S. economy, but will clearly lag,” the economist said. “The housing market remains a principal engine of growth, along with technology, and full recovery is not expected until mid-2022, and labor markets not until mid-2023.”

“We really have no idea when we’ll get back to normal …The reason is because the end posts have kept moving all along,” Dr. Schniepp added. “Initially, we were just supposed to lock down for two to three weeks while we flattened the curve. That turned into the final goal that we need to eradicate this pandemic completely.”

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