The overall vacancy rate for South Coast (Santa Barbara, Goleta and Carpinteria) office space of 8.8 percent did not change from the first to the second quarter. This is in large part due to the modest increases in Santa Barbara and Carpinteria and the modest decrease in Goleta. That doesn’t mean that the psychology of the market remained the same.
While there were fewer office leases in the second quarter versus the first quarter, the amount of overall activity in the marketplace increased. Surveys of activity indicate that tenants started to come back to the market to see what was available and what deals could be found. Owners were willing to negotiate on price, term, tenant improvements and rent concessions. These are all items that were seldom negotiated even just 18 months ago.
The increased vacancy rate didn’t mean that the market was in a free fall or that just any aggressive offer would be accepted. Property owners are typically well positioned in this market. Few are highly leveraged and the likelihood of a panic is low. Owners were making the deals that needed to be made in this environment and then looking to the future for revenue growth. By securing a strong tenant now, even at a lower rent now, they were better positioned to hold that tenant once the market turns around. Smart tenants were locking in longer term deals now to hold onto these lower rates.
We expect the vacancy rates for South Coast office spaces to increase over the next two quarters. However, we are extremely confident that Santa Barbara will weather this downturn and that we will be able to guide our clients into the best possible solutions.
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— Brian Johnson is an agent with Radius Group Commercial Real Estate.
