2013 Year-End Santa Barbara Retail Perspective

In my last retail report I commented on the rise in the “wealth effect,” in which the recent rise in home values and substantial gains in the stock market have lead to a rise in consumer spending. The theory is that as consumers’ perceived wealth increases, they will begin changing the “value-oriented” shopping habits that developed during the recession and seek higher-end retail choices. This trend did play out in the second half of 2013, but it was limited to those at the upper end of the market. Many Americans are still feeling squeezed by slow job growth and a slow rise in real wages.

This resulted in the majority of consumers limiting their holiday spending and holding out for large price discounts. Retailers responded with heavy promotions and discounts that drove holiday sales to a 2.7 percent increase over the prior year. The increase in volume was near predicted levels, but the aggressive discounts pinched retailers’ margins, resulting in many missed targets on fourth quarter balance sheets.

On the local front, 2013 ended with 50 retail leases signed in Santa Barbara and a slight increase in rental rates. The vacancy rate remains one of the lowest in the entire US, hovering around 2 percent.

Santa Barbarans were offered many retail openings of note in 2013. The opening of The Fresh Market at the former Scolari’s building at 222 N. Milpas St has received good reviews. Downtown Santa Barbara’s prized State Street retail corridor welcomed a range of new retailers – you can now head to 728 State Street for a delicious ice cream at McConnell’s Fine Ice Creams and then burn off the calories with an invigorating class at CorePower Yoga at 1129 State Street. Or you can simply shop for a good book at the new downtown bookstore, Granada Books at 1224 State Street, and then taste wine at the beautiful new Sanford Winery tasting room at 1114 State Street (La Arcada).

The Funk Zone has emerged as the city’s most exciting new retail area with the very successful opening of The Lark, Lucky Penny, the Santa Barbara Guitar Bar, and Figueroa Mountain Brewing Company. If you haven’t visited this part of town lately, you will be pleasantly surprised by the unique and lively retailers that have opened their doors.

Overall, 2013 was a good year for retail leasing in Santa Barbara. The volume of leases is healthy, and we are seeing more retail concepts looking at our market. I predict that 2014 will produce a slight decrease in vacancy. Landlords will see a small bump in rental rates but will still need to be competitive with concessions to attract good tenants. As the job market improves, the “wealth effect” will reach more Americans and be good news for store owners and landlords alike.