February 19, 2006
A new lease on commercial spaces

By Maria Zate

Business

A new lease on commercial spaces

MARIA ZATE, NEWS-PRESS STAFF WRITER

February 19, 2006

It was a very good year for the commercial leasing market in 2005, despite the doom and gloom predictions that high housing costs would cause businesses to flee the South Coast.

Several high-profile corporations have departed and left behind a glut of space, mostly industrial, in recent years. But many other firms have managed to flourish and expand.

The result has been significant improvement across nearly all types of commercial leasing. Areas which displayed the most trouble in 2004, namely office space in Goleta and Carpinteria, have bounced back or at least have reversed steep hikes in vacancy rates.

"It was a terrific year for commercial real estate," said Francois DeJohn of Leider Hayes Commercial in Santa Barbara.

Each year, Leider Hayes and Radius Group Commercial Real Estate, also in Santa Barbara, compile separate reports on the state of the commercial leasing market. The authors are Mr. DeJohn and Stephen Hayes of Leider Hayes, and Bob Tuler and Brian Johnson of Radius Group.

Both reports find the market in good health, with plenty of businesses expanding to fill spaces left behind from companies that have left the area.

Here are highlights from the two reports:

OFFICE LEASES

The Santa Barbara office market experienced the biggest demand of all commercial leasing last year, with the vacancy rate dropping from about 5 percent to 3 percent.

Downtown's increasing popularity as both a business address as well as a home address resulted in a surge in office demand and a plummeting vacancy rate in recent years.

Asking rents averaged about $2.20 per square foot. Santa Barbara has about 5 million square feet of total office space.

A new community bank, American Riviera Bank, signed the biggest office lease in Santa Barbara last year, taking 12,800 square feet at 1033 Anacapa St.

Carpinteria's office market also experienced a big -- and much needed -- turnaround. Vacancies fell from about 21 percent to around 12 percent in 2005. Lease rates of roughly $1.40 per square foot helped attract businesses looking for a lower rent alternative to Santa Barbara.

Several new companies decided to move to Carpinteria not only for deals on rent, but also to get closer to Ventura County's labor pool and more affordable homes.

The largest office lease signed last year was by Anamerican Corp., doing business as Pacific Operators Offshore, for close to 10,000 square feet at 6307 Carpinteria Ave.

In Goleta, the office vacancy also improved from more than 7 percent to around 5 percent by the end of the year. Asking rents averaged roughly $1.68 per square foot, not changing much from the year before.

Price-guide service Bargain Network inked the largest office deal with 43,900 square feet at 6300 Hollister Ave. However, Bargain also vacated a 39,000-square-foot building at 326 Bollay Drive, which makes that space the second largest available in Goleta.

INDUSTRIAL LEASES

Goleta's industrial market made slight improvements last year, but it continues to have problems attracting businesses that need spaces of 10,000 square feet or more.

The vacancy rate edged down to under 9 percent compared to more than 9 percent the year prior. There is roughly 4.2 million square feet of industrial space total in the area. Average asking rents have hovered in the $1.26 per square foot range.

The departure of large manufacturers in recent years -- among them Dupont, Joslyn Electronics and Delco/General Dynamics -- has flooded the Goleta market with vacancies.

Yet small- to medium-sized businesses have kept demand high for spaces with less than 10,000 square feet. However, these type of spaces remain scarce in Goleta.

"There is little space available under 3,000 square feet and little activity on spaces over 20,000 square feet," according to the Radius Group report.

Mr. DeJohn believes that owners of large industrial buildings will need to reconfigure or remodel into smaller spaces if they want to fill up the emptiness.

The largest industrial lease signed last year was for 58,000 square feet at 6740 Cortona Drive, with UCSB renewing its lease. The largest new lease was the charity Direct Relief International taking 23,000 square feet at 30 S. La Patera Lane.

In Carpinteria, the industrial market posted a big improvement last year, with the vacancy rate dropping from more than 6 percent to around 3 percent. Average asking rent was about $1.19 per square foot.

Carpinteria's industrial market is small, with only about 1.3 million square feet total, so one large deal can swing the tally dramatically.

That was the case when S&S Seeds signed a lease for 47,600 square feet of space at 6155 Carpinteria Ave. It was the largest industrial deal in Carpinteria -- but also the only one for more than 10,000 square feet.

Santa Barbara's industrial market has remained strong, even though the vacancy rate doubled in 2005 from about 1 percent to more than 2 percent. Average asking rents were about $1.30 per square foot last year.

Demand is expected to remain tight for the industrial market, as traditional manufacturing and repair businesses now find themselves competing with more "office type" firms for the relatively low cost space within Santa Barbara city limits.

Hill Road Ventures (Ty Warner Hotels & Resorts) signed the largest industrial lease in Santa Barbara with its deal for 10,000 square feet at 201 W. Montecito St. The space will be used for laundry facilities.

RETAIL LEASES

Available retail space within Santa Barbara is hard to find and expensive. As such, the vacancy rate has hovered around 1 percent since 1998, according to Radius Commercial's report. Santa Barbara has the largest total retail space on the South Coast, with 10.5 million square feet.

The vacancy rate rose from 0.3 percent to 0.6 percent at the end of 2005. Asking rents averaged $3 per square foot, but prime State Street rents are being pushed to new highs of $4 to $7 per square foot due to demand from large national chain stores.

Sav-On Drugs inked the largest retail lease in Santa Barbara at 222 W. Carrillo St. for 13,300 square feet.

Retail leasing in Goleta and Carpinteria is not specifically tracked by the Radius Group or Leider Hayes reports.

SALES

The sales market for commercial buildings and land was very active in 2005. Leider Hayes' report states there were 92 sales on the South Coast, totaling $255 million. Low interest rates combined with short supply fueled high demand to own a piece of property in the region.

In office properties, the two largest sales were for about $11 million each. The former home of Venoco oil company, at 5464 Carpinteria Ave. in Carpinteria, was sold last year to a local investor, despite the building being half empty of tenants. Tenet Healthcare's former home at 3820 State St. in Santa Barbara also sold for roughly $11 million to Select Personnel Services.

The largest industrial property sale was 6868 Cortona Drive in Goleta, which was purchased by a local investor for about $8 million, even though the building had been vacant since Joslyn Electronic Systems left town in 2002. The new owner plans to convert the building into office and R&D space.

On the retail front, the largest sale of 2005 was also the largest ever recorded on the South Coast: The Five Points Shopping Center in Santa Barbara was purchased by Regency Centers real estate investment trust for nearly $47 million. The company also owns the Circuit City Center.

e-mail: mzate@newspress.com