One of the questions on most people’s minds right now is “What is going on with State Street?” While this can be thought of as another way of asking how the retail market is faring, I believe people do focus more on downtown State Street than any other retail sector in the area.
Currently the vacancy factor for all retail in Santa Barbara is approximately 2.3 percent. Even though this has more than doubled since this time last year, it is still a low number. The downtown retail market has been hit by a dual decrease in tourism and local consumption. If one were to look at the percentage of available space, 65 percent of it falls in the downtown blocks of State Street. Add in the side streets around downtown and that number increases to 75 percent of all vacancy. This means that retail in areas like Coast Village Road, Upper State and Milpas Street is faring much better. This is to be expected as downtown State sees the highest concentration of activity in leasing and shopping.
Beginning about four years ago, we saw asking lease rates rise substantially for properties on State Street downtown due to an increase in interest from national tenants. When the economy started pulling back in 2008, we saw lease rates start to decline as the national tenants became more selective about where they wanted to locate, how much they were willing to pay, and what they expected in the form of concessions. The vacuum created has not been filled as quickly because local retailers are also having a hard time in this economy.
For those able to weather this storm, they will have an easier time negotiating with landlords who are now wary of fickle national tenants and their stringent requirements. Asking rates are back down to 2007 levels. For local retailers looking to start up or expand, State Street is a great option. Of the retail deals completed in the first quarter of 2009 all were from local or regional operators. This doesn’t mean that national tenants have abandoned Santa Barbara. We all know who moved into the old Pier 1 store on State Street and Forever 21 opened a flagship store at the old Anthropologie location on State Street while Anthropologie has reopened next to Old Navy in the 1100 block of State.
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— Brian Johnson is an agent with Radius Group Commercial Real Estate.