Downtown Santa Barbara Emerges as Hub for Technology Companies

Release Date: April 19,2019

A report issued by Hayes Commercial Group shows a rising trend since 2008 of converting dead retail space into viable office space

Tech lease transactions in downtown Santa Barbara Click to view larger
The number of technology companies leasing office space in downtown Santa Barbara has been on the rise since the 2008 recession. (Hayes Commercial Group graphic)

 

Hayes Commercial Group released a report this week that shows downtown Santa Barbara is growing into a hotbed for technology companies, a rising trend since the 2008 recesion.

State Street, struggling with double-digit vacancy, has an oversupply problem, which has fueled tech companies such as Sonos, LogicMonitor and Amazon to convert dead retail space.

"The repurposing of retail space to office space has generally been well received by the community, especially in the context of recent proposals to adapt or even redevelop some of State Street’s retail property for other uses, including mixed-use residential and office space," commercial real estate broker Greg Bartholomew said. "Having more tech employees working near State Street adds dynamism and economic vitality to the downtown area."

Downtown Santa Barbara's office space before the recession was mostly occupied by tenants in the financial and legal sectors. Tech companies in the 1990s and early 2000s primarly made research and development parks in Goleta their homes. The availability of office space downtown, however, has resulted in tech companies converting retail and industrial space. 

"The two main factors driving this migration have been the allure of downtown for tech workers and the increased availability of larger floor plans and spaces near State Street during and since the last recession," Bartholomew said. 

RightScale and Sonos were among the first tech companies to lease office space downtown during the recession.

"They recognized that the State Street area of downtown provided a lifestyle benefit to tech employees, many of whom value the walkable, amenity-rich environment of State Street over office park features like ample parking and proximity to more affordable suburban housing," Bartholomew said. 

Among the major downtown office space tenants:

» Amazon leased 46,800 square feet at 1001 State St. in 2018. A portion of the ground floor will be retail space and the rest for researchers.

» Sonos converted 27,700 square feet at 419 State St. in 2013. Invoca leased the building in late 2018.

» Sonos transformed 22,000 square feet at 614 Chapala St. in 2013. The building previously had been a camera and electronics store.

» LogicMonitor repurposed the vacated Guess retail storefront at 820 State St. into creative office space in 2017. 

» In 2019, mobile advertiser TapJoy leased 5,500 square feet of space at 126 E. Haley St.

» Honey Science, an online coupon finder, leased 18,800 square feet at 550 Chapala St.

Bartholomew said more tech companies will boost downtown.

"Amazon will have the positive economic effect of a few hundred more tech employees working downtown, frequenting eating and drinking establishments, shopping, etc.," he said. "Having a tech giant open an office downtown becomes a point of prestige for the the city and other companies hiring tech employees."

He said he doesn't expect any negative effects from the presence of the corporate giant. 

"I don’t see Amazon driving up real estate prices," Bartholomew said. "Amazon is primarily converting a large retail building to creative office space and paying rent comparable to what a major retailer like Saks probably would pay. Given current retail demand, Amazon’s office conversion is not crowding out any retailers, and since they are creating new office space, the impact on other office users is negligible. Tech companies rarely compete directly against traditional office users for space in our market."

More tech employees also could lead to more housing.

"The tech companies that are located downtown are generating built-in demand for housing that is within walking distance of State Street," he said. "Adding housing will increase the prospects for making downtown a neighborhood in addition to a business district, which most agree would have positive economic and cultural impacts on State Street. The challenges of adding significant housing to the downtown core are substantial, however — much easier to envision than to execute."

Noozhawk staff writer Joshua Molina can be reached at jmolina@noozhawk.com.

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