Commercial Transaction Volumes Drop in Santa Barbara
Commercial real estate transactions have been on a slow decline since 2016, when more than 100 properties traded hands in the market.
According to Paul Gamberdella of Radius, there are three main causes behind the trend. “The first is a widening gap between buyer and seller expectations regarding value,” Gamberdella, a principal with the firm, tells GlobeSt.com. “This relates mainly to straight investment sales where sellers are expecting the same lower cap rates that existed a few years ago, whereas buyers seem to be seeking higher returns under current market conditions.”
Buyers have also slowed acquisition activity as the market continues to mature. This trend has also contributed to the slow down in commercial deals. “There is this feeling that we may be at the top of the market, and this relates to straight investments and owner-user deals,” says Gamberdella. “Buyers are apprehensive about buying at the top. We often talk about economic downturns coming in cycles, which feeds into this psychology, yet the fact is the economy continues to chug along at a good clip despite the fact that we’ve exceeded the historical cycle, and there are no indications of a weakening market.”
Lastly, Gamberdella says that the buyer pool has changed as well—the final piece of the puzzle. “We have to consider the typical profile of a seller on the South Coast when trying to rationalize the decline in sales transactions,” he says. “Typically, these property owners are higher net worth individuals or entities that don’t “have to sell.” As such, when faced with reasons 1 and 2 noted here, these property owners will simply remove their property from the market and keep it.”
While there has been a declining trend, the first quarter transaction volume matched 2018, which could be a sign that there will not be a decrease in transaction volume this year. “That’s a good figure if you look at historical averages in our region for first quarters,” says Gamberdella. “On the other hand, the $104 million in sales volume out-paced the Q1 2018 sales volume of $66 million due to a few larger than typical sales transactions on the South Coast. Namely CenCal Health’s $30.5 million purchase of the building they have been leasing, an investment sale by ATK for $21.5 million, and one big ticket off-market deal for an undisclosed figure. In a South Coast commercial market where commercial transactions greater than $15 million are the exception rather than the norm, these three sales moved the Q1 2019 sales volume dial more than what we would typically see in the marketplace, especially for this number of transactions.”
However, the activity could also be a sign of growing property values, particularly for high –quality product. “I think it also speaks to higher quality product fetching higher price tags,” says Gamberdella. “Investors and owner-users are really looking harder at the fundamentals of a property to determine if it’s right for their business or portfolio. I’m not saying we’re going to continue to see bigger sales, but I think everyone is taking note that the market is there for properties that check a lot of boxes and competition for these properties could impact sale prices.”