By Pacific Coast Business Times Staff Sunday, January 11th, 2009

While global markets experienced wild swings and volatility, the local commercial real estate market held up comparably well, according to Pacifica Commercial Realty’s fourth quarter review and market update, which was released to the Business Times.

“Much of the intrinsic stability is attributable to three major factors,” wrote Broker and Executive Vice President Mark Mattingly and Associate Vice President Gregory Bartholomew. “We identify these as the lack of over-building, the strength of our technology sector and the stabilizing force of the wealth in this community.”

Though Mattingly and Bartholomew said these three combined factors “moderate the downside exposure when regional and national economic forces go south,” the South Coast commercial real estate market wasn’t completely immune to the whirlwind of troubles in 2008.

There were only six commercial property sales in the last three months of 2008. Over the past two years, the South Coast average was 16 sales transactions per quarter. Transactions were off by 60 percent for 2008 with 39 commercial property sales during the year.

Carpinteria

The report concluded that the office market in Carpinteria remained active and healthy throughout 2008. In fact, a smattering of local and national technology companies, including Microsoft, Northrop Grumman, and TASER International, are leasing Carpinteria spaces.

“Microsoft came to town and bought a technology firm [AdECN] that was there,” Mattingly told the Business Times. “It’s a story that’s repeated over and over again in our market. We incubate the companies here in our little entrepreneurial community. They grow here until they become attractive and someone big comes along and buys them.”

Bartholomew added that the University of California, Santa Barbara, often generates many of the region’s start-up technology companies. “Once they get to a certain critical mass, they catch the attention of a larger company. That’s what happened with Microsoft down in Carpinteria,” he said.

Pacifica agent Christos Celmayster said that when corporations as large as Microsoft start buying in the region, it adds significant stability to the market.

The report also noted that despite Carpinteria’s active leasing in 2008, the vacancy rate climbed to 7.7 percent during the fourth quarter of 2008, compared to 5 percent at the close of 2007. Average asking prices increased 7 percent during 2008 to $1.60 gross per square foot.

The inventory of available industrial space in Carpinteria nearly doubled in 2008. The 5.2 percent vacancy rate was 2.7 percent a year ago.

Santa Barbara

The Pacifica report found that leasing activity occurred in waves throughout 2008 in Santa Barbara, the largest of the office submarkets on the South Coast. In the first and second quarters, a large number of real estate, title and other financial service companies either consolidated or moved within the city, bringing a large amount of space to the market.

Deal velocity slowed considerably during the second and early third quarters, and began to pick up again throughout the fourth quarter. Leasing activity from area technology companies dropped the vacancy rate to 3.4 percent from the third quarter rate of 3.9 percent.

Industrial space in Santa Barbara continued to be in high demand in 2008, as the vacancy rate in the fourth quarter dropped to 1 percent, down from the already low third quarter rate of 1.2 percent. Average asking prices increased 3.6 percent in 2008 to an average of $1.42 gross per square foot.

Goleta

At the end of 2007 the vacancy rate for office facilities in Goleta stood at a landmark low of 3.3 percent, a figure now reported to be 10.4 percent, which Mattingly called “a big jump for our little market.”

The vacancy rate for the Class A sector was 3.7 percent or 160,000 square feet of available space, or roughly one-third of the total vacant space. The report found several factors that contributed to the jump in vacancies, including corporate downsizing, relocation and the addition of new office buildings.

During 2008 approximately 180,000 square feet of research and development or office facilities were leased in the Goleta market area, down from 260,000 square feet in 2007.

Leading the list of companies that grew, expanded or renewed their leases in Goleta during 2008 were Allergan, Yardi Systems, Pointe Conception Medical, InTouch Health, Isolite and Transphorm.

Industrial vacancy rates in Goleta rose modestly during the fourth quarter from 5.5 percent to 6.3 percent, showing a 58 percent increase from 2007, when the vacancy rate stood at 4 percent.

Predictions

The Pacifica report predicted that the commercial sales market would continue to decline until investors and owners can rekindle their confidence and their ability to secure financing. The Pacifica report looks for the financial markets to stabilize during the second half of 2009.

“The general consensus amongst the brokerage community is that 2009 will be a year of slower transaction volume,” wrote Mattingly and Bartholomew in the year-end report, “and that deals will continue to be hard to get approved as corporate executives play a conservative game of wait and see.”

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