WESTERN SNAPSHOT, MAY 2005

Central Coast, California Retail Market

Limited new retail development has occurred in Santa Barbara and San Luis Obispo counties due to a lack of developable land and a “no-growth” political climate. “These factors have led to mixed-use, infill projects becoming in vogue with many city and county planning departments throughout the region,” say partner Steve Leider and brokers Michael Martz and Brian McCririe of Leider Hayes Commercial Real Estate in Santa Barbara, California.

National retailers are clamoring to get into Santa Barbara’s hot retail market, especially State Street with its unique mix of historic buildings and charming storefronts. Coach, Sur La Table and 24 Hour Fitness have been able to establish a presence there. “Many others continue to be shut out due to their inability to stray from their national model requirements,” say Leider, Martz and McCririe.

Several retail centers have changed hands in the past 12 months in the Santa Barbara area. The 494,000-square-foot La Cumbre Plaza, an open-air, Meditteranean-themed property anchored by Sears and Robinsons-May, was purchased by The Macerich Company in summer 2004. The 145,000-square-foot Five Points Shopping Center is currently in escrow with Regency Centers and its joint venture partner Macquarie Trust of Australia. The REIT acquisitions mark a new trend in the Central Coast market.

“The recent purchases will aid the already emerging Upper State Street area of Santa Barbara,” says Leider, Martz and McCririe. “This neighborhood-serving region has historically been home to the South Coast’s service retailers and is now becoming a draw for other retailers who don’t want to get lost in the tourist shuffle of the lower State Street areas (e.g., Paseo Nuevo Mall).”

The vast majority of new housing in Santa Barbara County is taking place in Santa Maria, making the town a bigger target for retailers. In San Luis Obispo, Costco is building a new 140,000-square-foot store next to The Home Depot. An additional 140,000 square feet of anchors and pads — to be known as Irish Hills Plaza — are approved and scheduled for delivery in 2006. San Luis Marketplace, a 650,000-square-foot project, faces a ballot measure in April.  

Of the approximately 10 million square feet of retail space in south Santa Barbara County, only 65,000 of it — including the Paseo Nuevo Mall, La Cumbre Mall and its regional power center — is available for lease at an average asking rate of $41.52 per square foot NNN (it was $25.44 per square foot NNN at the end of 2003). Vacancy is less than 1 percent for the third consecutive year. In 2004, there was 115,000 square feet of gross absorption.

“With such a tight market in Santa Barbara, retailers consistently have to do deals behind closed doors or buy out leases in the space they wish to locate,” say Leider, Martz and McCririe. “Low vacancy and high barriers to entry have resulted in strong investor demand for retail product. Cap rates are in the 6- to 7-percent range.

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