High-end retailing is coming back

In his mid-year retail outlook, Michael Martz of Hayes Commercial Group asserts that upmarket retailers are becoming active again in Santa Barbara’s central business district, hoping to capitalize on the “wealth effect” — the rise in spending that results from an increase in perceived prosperity by consumers, who are the main engine of economic growth.
Mr. Martz, who concentrates on leasing commercial property on and near the State Street corridor, said the retail recession was challenging especially when it came to the high-end stores, which suffered the “worst” in terms of sales and profitability.

Just back from an International Council of Shopping Centers conference in Las Vegas, Mr. Martz said economists and other experts touted a shift in spending activity, which many retailers should welcome. Their optimistic assertion: Consumers will begin breaking the “value-oriented” shopping habits they developed during the recession and seek higher-end retail choices.

Santa Barbara experienced a surge of “value” and “discount” retail concepts after the economic downturn in 2008 — Marshall’s, 99 Cents Only Store and H&M are just a few of the examples that set up shop in prime State Street locations.

“During that period, tenants that never would have considered Santa Barbara were aggressively leasing space” at rates and terms that they probably wouldn’t get today, Mr. Martz told the News-Press.

It’s good to have a mix of retailers for a range of pocketbooks, said the broker, but landlords owning prime spaces are hoping to land tenants operating at higher price points per retail square foot.

Retail leasing in the first half of 2013 was active, with 39 leases signed in Santa Barbara as rental rates remained flat. The current vacancy rate of 2 percent is still one of the lowest in U.S. commercial markets.

For locals struggling with underwater mortgages, purse strings should be loosening as appreciating home values and lower levels of household debt bring out the credit cards at everything from small boutiques to auto dealers to eateries.

“We have great demographics for income and household wealth,” said Mr. Martz. And while local dollars are important, a rebound in visitor numbers also will help stoke retail sales growth, said Mr. Martz.

As the economy has improved, deal making is picking up again, Mr. Martz said, noting he’s talking to national retailers who weren’t even looking for space three years ago.

“I’m working on a deal with an exciting retailer, a national name” for a space at 930 State St., which used to house the Global Feet shoe store.

It’s not Nike town, but the footwear giant has smaller retail concepts that would work well in the local market. However, “they have not been willing to take the plunge” where Santa Barbara is concerned, said Mr. Martz, who has made inquiries.

In the meantime, the nearly 3,000-square-foot space, which is located one door down from the high-traffic Apple store, has been vacant for three years, which means the property owner has incurred carrying costs like taxes and maintenance expenses.

Mr. Martz hopes to announce the inking of a deal sometime soon.

While the 700 and 800 blocks of State Street are gold in terms of foot traffic and sales, Mr. Martz and his brethren are seeing a “reconcentration of the retail landscape” in Santa Barbara.

“Paseo Nuevo is not the only game in town anymore,” said Mr. Martz.

“In the next 5-10 years, you are going to see significant retail activity and new jobs” in the Funk Zone; at the corner of West Victoria and Chapala streets; and on upper De La Vina Street.

“Figueroa Mountain Brewery has lines out the door,” said Mr. Martz of the newly opened food and drink purveyor in the Funk Zone.

Another food-oriented project, the Santa Barbara Public Market, plans to open later this year at Victoria at Chapala streets and will host a collection of retail tenants offering local and regional fine foods.

“Get ready to eat well,” said Mr. Martz.

“Also exciting is the recent announcement that Paseo Nuevo is under new management with renowned mall developer Rick Caruso at the helm.

“We will be closely watching the potential upgrades to tenancies at the mall, and based on the ‘wealth effect’ trend, expect to see higher-end tenants joining the mix — both in and around Paseo Nuevo — in the coming years.”