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Macro Trends Affecting Santa Barbara Real Estate

By Rick Longpre on Aug 31, 2016 at 09:36 PM in Macro Economic News, Investing in Commercial Real Estate, Santa Barabara Commercial Real Estate, Santa Barbara Local News
Macro Trends Affecting Santa Barbara Real Estate

Broad socioeconomic trends, national and global, are having, and will continue to have, significant impacts on U.S. real estate. These impacts are visible everywhere, including right here in Santa Barbara.

 These trends, pointed out in a recent article by Michael P. Hedden in National Real Estate Investor (, alter the flow and dynamics of real estate investment, development and use.

 The Energy Sector & Santa Barbara Jobs, Economy

 Unstable energy markets associated with the crash in oil prices combined with the Refugio oil spill and alternative energy projects throughout the County affect regional employment and local economy (think Diablo Canyon, SLO windfarms, Veneco’s bankruptcy).

 Real Estate Capital Markets Have Changed

 The Great Recession has had a huge impact on the regulation and source of real estate financing. Real Estate capital has moved from Wall Street (CMBS) is out and crowdsourcing has emerged as an alternative financing source out of the same regulation while the community bank is under pressure from the same regulations.

Macro-Economic Trends and Demographics are Dramatically Altering Santa Barbara Housing Supply & Demand

As noted by Hedden, economic and demographic shifts “fueled by the baby boomers and the Millenials…[with] evolving needs, income constraints and expectatons are driving several trends.”

  • Millenials are lagging in income and saddled with debt, delaying entry into the housing markets; affordability and credit constraints have fueled demand for rentals
  • Boomers age in place or seek alternative living options, including independent, assisted or nursing options
  • The Great Recession and continuing stagnant wages has led to high demand for rental housing, the recent trend of urbanization with higher density and attractive amenities; this higher demand has fueled rent increases putting pressure on where workers can afford to live and where businesses locate

The Santa Barbara Retail & Office Sector are Evolving

  • The retail sector is experiencing disruption with middle-market legacy brands feeling the pinch of reduced purchasing power and increased online competition. Malls and Main Street are adapting with “experiential” mixed-use destinations with shopping, dining, entertainment and service options.
  • The commercial market is not immune; the “sharing economy” creates shared and virtual office space reducing demand and a new style of open, creative space is replacing the traditional office

Santa Barbara Real Estate – Broad Trends Hit Home

 Santa Barbara has not been immune from these impacts. Consider:

  • The development of 901 Olive (completed 2015) with the 1st new apartments in downtown Santa Barbara since the 1970s with rents for a “loft-style, urban” as high as $3,800
  • The development of 3885 State with 89 apartments and amenities including pool, spa, fitness center, garden, bocce ball etc.; these amenities will not come cheap completion expected early 2017)
  • The demolition of a successful hotel on Upper State St. (the Sandman) to develop 72 condos expected to be priced in the $1 million range (under construction 2016)
  • The emergence of the Funk Zone and “urban wine trail” after decades of hope to a vibrant entertainment hub commanding rents exceeding the heart of downtown State St.
  • State St rents have failed to recover much from the Great Recession with soaring vacancy and discount retailers dominating (Marshall’s, H&M, Off Sak’s, Dollar Store)
  • Tech, “creative” office space dominates with adaptive re-use of industrial properties to office from the likes of Sonos, the Impact Hub on State St. and others; do you know anybody with a “virtual” job, I do
  • The passage of a “high density overlay” zone in the City of Santa Barbara to increase housing density in downtown Santa Barbara