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Local News

Commercial Real-Estate Vacancies Rising, But Market Remains Tight

Fast-growing RightScale defies Santa Barbara's slowdown trend with its "cloud computing" concept.

The future looks bright for RightScale CEO Michael Crandell, left, and vice president Chris Fowler, who have new digs and a hot high-tech concept in
The future looks bright for RightScale CEO Michael Crandell, left, and vice president Chris Fowler, who have new digs and a hot high-tech concept in “cloud computing.” (Rob Kuznia / Noozhawk photo)

Given the spiraling economy and the recent closure of popular local retail outlets such as Savoy Cafe & Deli, Camille Sea Spa (which is still doing house calls) and Video Shmideo, it’s only natural to assume that Santa Barbara’s commercial real-estate market must be well on its way to ghost-townsville.

But commercial real-estate professionals insist that, although business has definitely experienced a slowdown, the local market is less gloomy than you think — although there’s no telling what 2009 holds.

“We’re seeing vacancy rates creep up a bit, and demand diminish, but not nearly as bad as the overall picture and economy out there,” said Greg Bartholomew, associate vice president of Pacifica Commercial Realty. “Our vacancy rate is still pretty tight in Santa Barbara.”

In Santa Barbara, the vacancy rate for commercial retail is around 1.5 percent, up from about a half-percent in 2007, said Brian Johnson, a commercial specialist with Radius Group. For commercial office space, the rate rose to about 5 percent from 3.9 percent in the last quarter, said Bartholomew.

Meanwhile, more changes are in store.

One significant development will happen in March, when Anthropologie, a high-end casual clothing store at 901 State St., will move to the 1100 block of State. Anthropologie’s current location will be filled by the clothing retailer Forever 21. An Apple Store is due to open at 928 State St. later in the spring.

The office-space market is benefiting from a rare, trend-bucking juggernaut.

The high-tech startup RightScale, which specializes in the burgeoning arena of cloud computing, is moving out of its incubator at 402 E. Gutierrez St. and into an 11,000-square-foot downtown office building at 136 W. Canon Perdido. RightScale recently received a $13 million boost from venture capitalists, a move so rare in this current economic climate it attracted the attention of The New York Times.

In the next year, RightScale plans to double its number of employees, to 80 from the current 40.

“We’re looking for engineers, marketing people and tech support,” said RightScale CEO Michael Crandell. “It’s a bright star in an otherwise dreary economic outlook.”

Of course, the fact that RightScale’s success is such big news means its expansion is the exception, not the rule. But local real-estate agents insist the current vacancy rates are still pretty low.

“I don’t want to say everything is rosy and great, but people tend to walk up and down a few blocks of State Street and focus on the buildings that are vacant,” Johnson said. “Santa Barbara is a very large retail market.”

Johnson said the retail vacancy rate in the past 10 years has always ranged from a half-percent to 1.5 percent, although he noted the current figure — 1.5 percent — is the highest it’s been since at least 2003. Bartholomew said the commercial vacancy rate was incredibly low between 2003 and 2007, when it hovered in the range of 2 percent. By 2007, it had crept into the threes. Now, at 5 percent, instead of being high, it’s normal, he said. In California, he added, the norm is more like 9 percent or 10 percent.

As for commercial rent prices, they remain high, but are falling. Johnson said the average rate for retail has dropped to $3.60 per square foot from $4.50 at the start of 2008. But they still aren’t as low as they were about five years ago, when prices hovered for years between $2.50 and $3.

“The prices really started to rise around mid 2005,” he said.

The intense intrigue about the economy and its effects on the local commercial market has spawned a spate of rumors about closures. Some have turned out to be false.

The economic slowdown has been felt at Stateside Restaurant & Lounge in La Arcada, according to owner Joe Middler, but bartender Nikki Creel is still pouring drinks with a welcoming smile.
The economic slowdown has been felt at Stateside Restaurant & Lounge in La Arcada, according to owner Joe Middler, but bartender Nikki Creel is still pouring drinks with a welcoming smile. (Rob Kuznia / Noozhawk photo)
Two weeks ago, for instance, local blogs speculated that the days were numbered for Epiphany restaurant, 21 W. Victoria St., and Sears Roebuck in La Cumbre Plaza. Representatives at both places denied the hearsay.

Around the same time, the Stateside Restaurant & Lounge, 1114 State St. in La Arcada, found itself asking the Santa Barbara News-Press newspaper to retract a story announcing its closure. (The paper complied.)

On Wednesday, Stateside owner Joe Middler told Noozhawk that business is indeed slow, but he’s coping by “running the business a little leaner and meaner.”

Despite the relatively optimistic reports from real-estate professionals, Middler said he expects the local retail economy will worsen.

“Nobody is shopping or buying,” he said. “We’re all hit and we’re not making money. Wait till six months go by.”

In other commercial real-estate news:

» The upscale frozen dessert franchise Pinkberry will open in the storefront at 742 State St. that was vacated by Jamba Juice.

» Whole Foods will open in a yet-to-be-built store at the site of Circuit City, 3761 State St. Circuit City will close.

» The Melting Pot restaurant will soon open at 604 Anacapa St.

» An ecology-minded home appliance store called Living Green is opening in mid-January at 614 Milpas St., which was vacated earlier this year by American Pie Records, Santa Barbara’s last music store that exclusively sold vinyl records. American Pie moved to Ventura.

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