Newmark PCG

February 9, 2021

Santa Barbara’s history is full of infill transformation with the film industry, the oil industry, and tourism. Once again, the Lagoon District is being revitalized as residents open an array of businesses in flex space, including breweries, tech startups, and an artisan marketplace. Local business will benefit as the population increases due to the current dense urban exodus and the constrained competition as local planning guidelines limit urban sprawl.

The Lagoon District is a neighborhood in Santa Barbara, California and is less than a mile to Santa Barbara Harbor, East Beach, and Santa Barbara City College. The Lagoon District is defined as the area bounded by Cota Street to the Northwest, Milpas Street to the Northeast, California State Route 1 to the South, and Anacapa Street to the Southwest. The Newmark Private Capital Group has seen the demand in the Lagoon District among local investors through our marketing process of The Platform, a 32,133 square-foot flex building.

The Lagoon District Supply

IndustrialOfficeRetailMultifamily
Buildings14257674
Avg. Building Size4,5374,0174,35516,632
Inventory (SF)644,201228,995291,79966,527
Vacancy (SF)25,30012,32914,1750
Vacancy (%)3.9%5.4%4.9%0.0%
Availability (SF)37,90012,32015,2740
Source: Newmark Private Capital Group & CoStar Research, 2021

The Lagoon District Office and Flex Demand

The Lagoon District is primarily a mix of industrial, office, and retail buildings mainly occupied by local businesses. The office buildings benefit from a long list of restaurants, breweries, and other retail locations within the Lagoon District and the adjacent neighborhood, the Funk Zone. The Lagoon District is also about one mile from the East Beach, the harbor, and Stearns Wharf. These attractive amenities draw tourists and residents alike and are a key feature to the community’s appeal.

Despite the pandemic, the Lagoon District experienced relatively low vacancy in the second half of 2020 due to the nearby amenities and the limited supply of office space. Santa Barbara’s planning guidelines and community representatives are heavily against urban sprawl to the degree that the city used to deny water utility access to projects approved by the County Board of Supervisors. The last office building developed in the Lagoon District was in 2001. Developers focus on renovation and infill development rather than new construction of subdivisions. Since development is limited by natural (mountains and ocean) and political barriers, the demand for office space remains high.

For more information about the adjacent neighborhood, the Funk Zone, see the Private Capital Group’s separate report.

“Santa Barbara is a stable market that has considerable upside post-Covid-19, which we have seen through our recent listing in the Lagoon District.”

Ryan Tetrault, Associate at Newmark Private Capital Group

Population Growth in Santa Barbara

Historically, Santa Barbara’s population has grown at the same rate as the average for California; however, the pandemic has heightened awareness of population density and the related health risks during an outbreak. Over the past year, there has been a population exodus from the densest urban areas in the United States to lower density urban, suburban, and rural communities. Unsurprisingly, Los Angeles and New York have been most affected by the exodus.

In California, Santa Barbara has been one of the most popular destinations for movers from Los Angeles and San Francisco. Over the past year, the net inflow of population to Santa Barbara increased by 124%. As many people look to escape a dense urban metropolis, Santa Barbara, with open space, plentiful beaches, and lower population density, is far more appealing than many other communities. And since some companies have already announced post pandemic work from home policies, employees will continue to have the option to live farther away as the five-day work week changes.

City of Santa Barbara Demographics

PopulationPercent Population GrowthMedian IncomePercent Median Income Growth
201088,436
202091,1303%$84,540
202591,2211%$93,82511%
Source: U.S. Census Bureau

Lagoon District Demographics

PopulationPercent Population GrowthMedian IncomePercent Median Income Growth
2010781
202094020%$51,196
20259491%$55,7029%
Source: U.S. Census Bureau

The full report includes, among other information, a map of the major ownership groups, the current development pipeline, and recent sales and leasing activity in Santa Barbara.

Disclaimer: The information contained in this article is provided for general informational purposes only, and should not be considered or treated as legal or tax advice and represents only general information that may or may not be applicable to the reader’s particular situation. The reader should consult its own attorney and/or tax advisor if specific guidance, information, or advise is required.

About the Author(s)

Sean Fulp is based in Los Angeles and leads the Newmark Private Capital Group, which focuses on selling small and mid-sized office, industrial and multifamily properties throughout the Western U.S. Ryan Tetrault is an Associate on the Newmark Private Capital Group and has been involved in the disposition and marketing of over $800 million worth of office, industrial, and retail property across the Western United States.