The past year has seen a sharp decline in rental activity in all markets in our region, but we have seen the office sector rebound quite well in the first half of 2021.
However, this demand slowed in the 3rd quarter, mainly due to the ramp-up of the Delta variant of COVID-19. A number of companies were planning to downsize to the office which postponed these plans until early 2022.
This has resulted in a decrease in the number and size of leases. Where Santa Barbara had seen an absorption of 60,000 to 70,000 square feet in the last three quarters, we have seen less than 40,000 square feet of absorption this quarter.
Goleta also saw a decline in rental activity this quarter, to approximately 45,000 square feet. Carpinteria has actually seen a nice increase in rental activity, but since the market is so small, even a few leases can cause vacancy rates to fluctuate sharply.
These declines were also evident in the average rental rate for leased office space.
Santa Barbara had seen average rental rates in the range of $ 3.10 to $ 3.25 per square foot during the first two quarters of this year, but the third quarter saw that average rental rate hit drop to $ 2.62 per square foot.
The main contributor to this is probably and due to the majority of the rental activity that takes place in property categories B and C, and not commercial property owners who are discounting their properties more.
The office vacancy rate in Santa Barbara decreased very slightly to 10.4%, but the office vacancy rate in Goleta actually increased to 6.9%.
Neither have seen much change in the average asking rate for their respective markets, which gives further evidence of the idea that homeowners are not making big discounts on their asking prices.
While these vacancy rates don’t seem high compared to other markets across the country, the Santa Barbara office vacancy rate typically ranges from 5% to 7% in most years.
Goleta is doing pretty well compared to Santa Barbara right now, as businesses have more choices of buildings with larger office floor plans so they can better plan the new office environment.
Considering how California handled the latest surge, I think the office market will pick up towards the end of this year. Immunization rates continue to rise and positive cases have declined in recent times.
We should see a stronger 4th Quarter, and 2022 should be a solid year for leasing, as more workers return to the office.
While I don’t expect the title “Office is Dead” to go away anytime soon, I have no doubts that the office industry will come back in new and better ways.
Brian Johnson is a Licensed Real Estate Agent in California and the Managing Director of Radius Commercial Real Estate. Brian handles all types of commercial real estate transactions, but has a particular focus on multi-family investments. He can be reached at 805-879-9631 or [email protected]
Brian Johnson is the new president of the Santa Barbara Association of Realtors. He is a licensed California real estate agent and the Managing Director of Radius Commercial Real Estate. Brian handles all types of commercial real estate transactions, but has a particular focus on multi-family investments. He can be reached at 805.879.9631 or [email protected]