Top Trends in Santa Barbara Commercial Real Estate

Santa Barbara's picture-perfect coastline, vineyards, and mountains make the county a popular destination for tourists and residents alike. Investors find Santa Barbara commercial real estate an attractive proposition: healthcare and retail spaces are a draw for both residents and nonresidents, and the surging population has resulted in persistent demand for housing.

Housing development is not keeping pace with current demands across Santa Barbara County. The county’s population grew by 5.7% last decade, according to reports on the most recent Census stats. However, during the same period, the county added only 5,545 new housing units, an increase of merely 3.6%.

Housing and retail demand are leading commercial real estate pros in Santa Barbara to focus on key areas of opportunity in a hot market that has recently seen a record amount of commercial sales volume: multifamily development, redevelopment of older properties, pop-up retail, and hotel investment. 

Given the long-term need for housing, possible apartment development sites are of great interest in Santa Barbara commercial real estate opportunities. Several large projects are in various stages of proposal across the county. One of the larger projects proposed is a 332-apartment complex in Goleta. As presently conceived, the project would have 228 market-rate units and 104 affordable units.

Another large project in the planning stages is a proposal for a 78-unit apartment building behind the old Staples store in downtown Santa Barbara. The project would have 42 studios, 18 1-bedrooms, and 18 2-bedrooms, along with 89 parking spaces.

Yet another multifamily development eyed for downtown that is wending its way through the approval process is an 82-apartment building slated for Milpas Street. The four-story building is expected to have 16 affordable units.

Although land for sale in Santa Barbara is scarce, developers can still find smaller properties downtown that could be the site of multifamily construction, such as the 1,272 square-foot automotive building for sale on the bustling corner of De La Vina Street and West Carrillo Street. The property is zoned for commercial use or multifamily development, allowing for flexibility with future revenue streams.

 

While there is housing demand throughout Santa Barbara County, it is particularly acute in areas like Santa Maria, where forecasts predict a need for housing to accommodate an additional 50,000 residents by 2040 — a tally that would require the development of 16,000 new residential units. The city is working on drawing up maps to plan out annexation and infill opportunities for development. Now is an excellent time for Santa Barbara commercial real estate developers to look at multifamily property opportunities in the area.

One of the bigger projects currently on tap for the area is Element Apartments, a project near the Santa Maria Airport that is slated to have 167 units and 7,500 square feet of commercial space.

Meanwhile, another proposed project involving the construction of 49 single-family homes recently cleared a zoning hurdle.

While some development is imminent, much more will be needed in the coming years to satisfy residential demand in the area, making Santa Maria an attractive prospect for developers.

One major trend in Santa Barbara commercial real estate is to revamp and reconceive older buildings, particularly within the city. La Cumbre Plaza recently sold to a development team that plans to shift it from retail to residential. Meanwhile, the 175,000 square-foot Nordstrom building, which has been vacant for quite a while, has been purchased by an investor planning to repurpose it as office space. The Ortega Building on State Street is also being remodeled into office space.

Investors on the market for potential redevelopment properties may also find them outside city limits, such as this 4,332 square-foot North H Street building situated on 1.2 acres in Lompoc. The CPD-zoned property can potentially be made into two drive-through or quick-service restaurants. The existing building could also be reimagined as a showroom or expanded into a larger retail space twice its current size. 

The big trend for retail in downtown right now, especially on the busy State Street corridor, is short-term leases. Spaces under 2,000 square feet have been in particular demand lately, with businesses like boutiques and galleries filling vacancies, especially for pop-ups.

Vacant retail spaces dropped from 29 to 23 from the first quarter to the second quarter of 2021, signifying that Santa Barbara commercial real estate investors have an increasing appetite for retail on the city’s famed shopping boulevard.

Several hotels have recently traded hands in Santa Barbara: The Hotel Californian sold for $130 million; Hotel Santa Barbara sold for $41.9 million; and Riviera Beach House, formerly known as Hotel Indigo, sold for $18.7 million.

In terms of new development, an 86-room hotel on the corner of East Cabrillo Boulevard and South Calle Cesar Chavez has received the green light from the Santa Barbara Planning Commission. The waterfront development would include a detached one-story retail building, gardens, a spa, and electric-vehicle parking spaces.

There are several real estate deals, developments, and trends in Santa Barbara that you should know if you're looking to invest. With the right planning and execution, investing in Santa Barbara commercial real estate can be a lucrative decision.

The Cohen | Debuiser Team is a leading commercial real estate group with Marcus & Millichap, focusing on office, industrial, and retail investment sales in Ventura, Santa Barbara, and Los Angeles Counties. Across all Marcus & Millichap teams, The Cohen | DeBuiser Team ranks seventh in the nation, with 23 closings and $1.9 million in gross revenue for 2021. Whether buying or selling, contact The Cohen | DeBuiser Team for expert insights on commercial real estate in Santa Barbara.