For a while there, and for obvious reasons, Santa Barbara’s office-space market was ice cold.
Companies had no idea how or when the pandemic would end, so they deferred on making any major decisions about what to do with their empty properties. They didn’t want to give them up if they didn’t have to, but they didn’t want to make any long-term commitments, either. Few leases were signed, and even fewer sales were made. “It was very stagnant,” said Gene Deering, a principal at Radius Commercial Real Estate.
But with lockdowns lifted, the market is quickly thawing out. Not only are new deals being made, but more and more downtown retail properties are actually switching to office space, said Caitlin McCahill Hensel, an associate broker for Hayes Commercial Group. “Most notably, the upper floors of the former Macy’s are being marketed as office space, and there has been steady interest,” she said. “The upper levels of the old Nordstrom building will also likely be marketed as offices later this year,” a fact that has not been previously reported.
The prediction that the pandemic would render physical office space obsolete is simply not playing out, at least not locally, both Deering and Hensel said. While companies have adapted to doing business virtually, many of their employees are feeling work-from-home fatigue and craving personal interaction. “We definitely see a hybrid workforce starting to develop, although a long-term disruption in office-space need seems unlikely,” Hensel said.
Deering talked about his own experience of returning to Radius’s home base. “I’m so happy,” he said. “I didn’t realize how much I missed the camaraderie.” Demand is also coming from new money moving into moving into Montecito and Hope Ranch from San Francisco and Los Angeles, he said. “A lot of those folks aren’t good at sitting around. They have COVID money and COVID energy and will be active in the market.”
Clean, modern spaces with a lot of glass and at least some parking are getting gobbled up quickly, Deering went on. And the property owners who proactively upgrade their buildings — as opposed to signing a new tenant and then forcing them to wait four to six months for a major buildout — are doing especially well. “Also interesting to note,” Hensel said, “we’re seeing more businesses wanting private offices as opposed to the creative open concepts that were popular over the last few years.”
Jason Jaeger of Jaeger Partners echoed his colleagues, explaining he’s showing a lot of spaces to a lot of clients right now. He just rented the third floor of the El Centro building on Canon Perdido Street to Women’s Economic Ventures and is fielding multiple offers on a large property on Gutierrez Street. He and his partner also just bought the historic Lobero Office Building. Similarly, at the start of the year, the Freitas building on Carrillo Street had four major vacancies. In the past six months, however, they’ve all been filled by law, accounting, and engineering firms.
Jaeger Partners kept nearly all of its tenants during the pandemic, Jaeger said. “The PPP loans saved a lot of these people.” He’s observing some of his State Street clients converting their long, narrow spaces — no longer suitable for modern retail needs — into office space, and he’s also seeing an influx of attorneys and CPAs, as well as tech workers. Many are drawn from big cities to Santa Barbara for its “better way of life,” Jaeger explained. “For all the perks we know and love.”