The Economic State of Downtown Santa Barbara

Public discourse surrounding State Street quickly becomes emotional. Personal histories and idealized memories distort the reality of what has happened downtown. But our downtown is not the only downtown to feel the impacts of national and global forces over the last decades. To conclude that any one factor, including the reintroduction of cars to State Street, is THE solution to invigorate the downtown is overly simplistic — especially for the heart of the city’s cultural district. Following that impulse would be a sacrifice of the very real placemaking and community building born out of a car-free street. Placemaking is the process of creating quality places that people want to spend time in.

Expanding and improving a car-free paseo supported by transit is the perfect canvas to incorporate additional economic development measures as outlined below and bring our downtown into the 21st century. It is important to understand all the facts and forces at play in order to address the real issues impacting downtown. The State Street Advisory Committee and City Council should review past efforts directed at downtown revitalization in order to make informed decisions about the function of the promenade. Opening State Street to people and excluding cars from the right of way is in line with measures that experts recommend to support a vibrant downtown. Reducing the scope of the car-free area ignores the real issues at hand.

The Current State of State Street

What exactly is the state of State Street? The City’s Draft Economic Development Plan cites tax revenues, employment rates, composition and number of businesses, and downtown commercial vacancy rates as measures of Santa Barbara’s economic health [1]. The scope of this review will focus on the last metric and expert opinion on the subject of downtown revitalization.

There is no evidence directly linking the exclusion of cars on State Street with a decline in the local economy. To start, commercial vacancy concerns predate the pandemic era changes to State Street. News articles dating as early as 2016 cite rising commercial vacancy rates on State Street [2]. Reports of high vacancy rates persisted through the beginning of the pandemic. In June 2018 the commercial vacancy rate was 14.8 percent. During the active pandemic period, the vacancy rates spiked to 19.28 percent in Q4 2020.

The Economic Performance of Car-Free State Street

In comparison, the current vacancy rate is 12.4 percent — the lowest rate seen in four years [3]. By this metric alone the car-free State Street is outperforming the pre-pandemic version of itself. Even the mayor acknowledges that the issues precede the car-free street yet provides no evidence to bolster the claim that cars will remedy the issues. In fact, academic literature supports bicycle and pedestrian-friendly streets as a means to economic development [4].

If a State Street with cars was already in economic decline, what other factors drive vacancy rates? Since 2015, many efforts have attempted to answer this question. Past analysis paints a picture of a downtown in distress because it has not diversified or evolved to meet 21st century needs. According to experts, the biggest issues hurting downtown are a lack of locally serving and/or locally established retail, homelessness, and a lack of housing downtown.

Retail Mix and Its Impact

Whom does our downtown serve? A 2015 study commissioned by the Downtown Organization found that there was an “unbalanced mix of retailers — tourist-oriented stores and national retailers dwarf the amount of quality local/regional stores.” The study emphasized the importance of having locals shop downtown. “[If] we also can’t get locals to shop here then it may not be sustainable in the long-term.” This echoes current issues with Santa Monica’s once vibrant Third Street Promenade, where “mom-and-pop” businesses were pushed out to make way for national chains that could afford increased commercial rents. The pedestrian promenade was so successful that commercial rents drastically increased. As a result of the composition of retailers, only 12 percent of Santa Monicans went to the promenade in an average year [5]. When the “retail apocalypse” hit, larger retailers left, leaving large-scale commercial vacancies with high asking rental rates.

This is similar to what we have seen in Santa Barbara with the departure of national retailers like Macy’s, Nordstrom, Forever 21, who all had large tenant spaces. The departure of these retailers was influenced by larger economic forces like consumer shifts towards online retailers. An abundance of national retailers diminishes the sense of place. Experts agree there is a connection between the vibrancy of a downtown with the number of businesses with character. In this regard, the decline of our central business district is not distinct from the decline of central business districts throughout the country. The generally understood antidote to this is placemaking and having a downtown that supports neighborhoods [6]. Bringing cars back to State Street as a mode of transportation is in direct conflict with the tenets of placemaking and community building.

Despite vacancy issues, property owners did not immediately adjust their asking commercial rents. There is a documented history of long-standing property owners with low motivation to re-lease commercial space at lower rates. According to Radius Real Estate many property owners “wait until the next Apple store comes knocking on their door” before lowering rents [7]. Even when rents are lowered, tenant spaces are often larger than is functional for many businesses, which makes them more expensive. Kosmont Companies found commercial rents in Downtown Santa Barbara were commanding “notably higher rent per square foot than other area submarkets” even though vacancies were “notably higher”. [8] Again, this has very little to do with the lack of cars on State Street.

Homelessness and Its Impact

Experts cite homelessness as a significant factor negatively impacting economic development on State Street [9]. Like the issue of retail vacancies, concerns about homelessness precede the pandemic era changes to State Street. In 2011 the City Council considered a proposal to modify the configuration of benches to discourage panhandling in an attempt to “make locals & visitors feel more welcome downtown.” [10] That same year an article cited the presence of homeless people who frequent Library Plaza as the biggest motivation behind the plaza’s remodel [11]. Crescent Crossing, a sculpture previously located on the 600 block in front of the Habit was fenced off for a year prior to being moved to the Amtrak station in 2016 due to concerns about panhandling and transients [12]. In 2018, City Council expanded the reach of a “sit and lie” ordinance that would prohibit sitting or lying down on the first 13 blocks of State Street, and the first block of East Haley Street with the intent of “cracking down on nuisance-crimes, so called ‘street behavior’ and homeless residents who frequent the area.” [13]

Homelessness is not just an issue impacting Santa Barbara – since the beginning of the COVID-19 pandemic homelessness increased statewide. Effectively ending homelessness in America is a complex issue that is outside of the scope of this analysis. Some residents wanting a return of cars to State Street point to Carmel, CA as an example of what Santa Barbara can be. Reports from local Carmel news publications point out that homelessness is heavily criminalized within the boundaries of the downtown. So the local homeless population inhabits the outskirts of downtown to avoid trouble with the law [14]. It is challenging to draw a nexus between the changes to the right of way and homelessness in Santa Barbara.

Housing as a Solution

The largest element — according to experts — lacking in our downtown, is housing. Study after study recommends housing as a means to revitalize State Street. In fact, the Kosmont study found that there is an oversupply of retail real estate downtown [15]. This was also echoed in a 2019 report by Kosmont where they found “of a total of 1.5 million SF in retail space downtown, approximately one-third or 400,000-500,000 SF is not supportable in the long term unless there are more customers, residents, and office workers Downtown.” [16]

It was surprising to read that the City and downtown capture “substantially more than their ‘fair share’ of retail and restaurant expenditures.” Sales capture is the ability of a specific geographic area (such as a city, town, or district) to attract and retain consumer spending within its boundaries. This is indicative of a need to redevelop commercial properties into much needed housing.

The City recognizes the need to bring housing downtown in the Draft 2021-2024 Economic Development Plan, but has failed to materialize the deluge of projects needed to fill the housing “donut hole” that exists downtown. The 2021 Kosmont Study found that only 2 percent of the floor area downtown was occupied by residential uses. In spite of changes in state law and zoning regulations, housing development on State Street is still stymied by problems with the city’s permitting process and factors outside the city’s control, like material and labor costs and housing finance.

If there is one significant step the city could take, it is to continue to adopt policies that facilitate the redevelopment of the downtown to accommodate infill housing. Residents of the downtown will have more transportation options compared to residents who choose to live on the periphery of the city [17]. These residents will have less of an impact on vehicular traffic on the city overall.

Promoting active transportation downtown makes even more sense when considering an increase in the residential population. Furthermore, car-free streets create a canvas for robust civic programming to occur. The city should continue to build stronger public/private partnerships to activate State Street. The vital promenade that is State Street can be a place where people of all ages live, work, and play.

Conclusion: The Evolution of State Street

Given the lengthy history of economic development issues impacting the city and the downtown, it is clear that the reintroduction of vehicular traffic will not “fix” State Street or “return” State Street to a past vision of success. The economic climate and community needs have evolved. As such, the street must evolve into a place where the community can gather rather than a thoroughfare for tourist traffic. Active modes of transportation should take a central focus in the future of State Street. Accessing the length of the grand paseo to the train station and the waterfront should be convenient by foot, bike, or transit. Residents shouldn’t be forced to drive to meet their basic needs. The decision of how downtown is treated is a value statement that goes beyond the boundaries of the Central Business District.

[1] City of Santa Barbara. Draft Economic Development Plan 2021-2024
[2] Kacik, A. August 5, 2016. “Retailers worry about state of State Street.” Retrieved from https://www.downtownsb.org/item/state-of-state-street
[3] April 2024. Hayes Commercial 2024 Q1 Real Estate Report. Retrieved from
https://hayescomm.wpenginepowered.com/wp-content/uploads/2024-Q1-HayesCommercial.pdf
[4] Rogers, A. March 7, 2023. Business Insider. “Bike lanes are good for business: Study after study proves it. So why do so many shops and restaurants still oppose better streets?” https://www.businessinsider.com/bike-lanes-good-for-business-studies-better-streets-2024-3
[5] Mejia, Paul. SF Gate. “’Shocking’: The fall of Third Street Promenade, Calif.’s once-vibrant outdoor mall.” May 21. 2024. Retrieved from https://www.sfgate.com/la/article/santa-monica-third-street-promenade-empty-why-19374158.php
[6] Hadden Loh, T. & Love, H. March 23, 2023. “Breaking the ‘urban doom loop’: The future of downtowns is shared prosperity.” Retrieved from https://www.brookings.edu/articles/breaking-the-urban-doom-loop-the-future-of-downtowns-is-shared-prosperity/
[7] Goldman, Sam. Noozhawk. “Santa Barbara’s State Street Sees Uptick in Vacancies Amid Changing Retail and Consumer Landscape.” December 27, 2016. Retrieved from https://www.noozhawk.com/santa_barbaras_state_street_sees_uptick_vacancies_amid_changing_retail/ 
[8] Kosmont Companies. December 2021. “Draft Santa Barbara State Street Retail & Office Market Analysis”. Retrieved from https://santabarbaraca.gov/sites/default/files/filesync/Advisory_Groups/State_Street_Advisory_Committee/Current/09_Resources/2023_02_23_Kosmont%20-%20Downtown%20SB%20Market%20Summary%20-%202022.01.pdf
[9] Kackic. 
[10] Chawkins, S. LA Times. “Santa Barbara kills $50,000 plan to curb panhandling”. Retrieved from https://www.latimes.com/local/la-xpm-2011-feb-09-la-me-santa-barbara-benches-20110209-story.html
[11] Loomis, S. July 19, 2011. SB Independent. “Blueprints, Wish Lists Created for Library Plaza Remodel .“ Retrieved from https://www.independent.com/2011/07/19/blueprints-wish-lists-created-library-plaza-remodel/
[12] Cooper, L. Noozhawk. January 22, 2016. “State Street Sculpture Being Relocated to Santa Barbara Train Station.” Retrieved from https://www.noozhawk.com/state_street_sculpture_will_be_relocated_santa_barbara_train_station/
[13] Molina, J. July 24, 2018. Noozhawk. “Santa Barbara Expands Ordinance to Crack Down on People Who Sit, Loiter on East Haley Street.” Retrieved from https://www.noozhawk.com/santa_barbara_ordinance_cracks_down_people_sit_loiter_east_haley_street/ 
[14] Brown, E. and Bouhaja, S. February 3, 2022. The Carmel Sandpiper. “Beyond the Glitz and Glam: Carmel’s homeless residents.” Retrieved from https://thesandpiper.org/beyond-the-glitz-and-glam-carmels-homeless-residents/
[15] Kosmont Companies.
[16] City of Santa Barbara. July 25, 2019. Staff Report “Recommendations For Downtown Revitalization From Kosmont Companies”. Retrieved from https://records.santabarbaraca.gov/OnBaseAgendaOnline/Documents/ViewDocument/Council%20Agenda%20Report%20-%20PRESENTATION%20OF%20KOSMONT%20REPORT%20AND%20DOWNTOWN %20RECOMMENDATI.pdf?meetingId=485&documentType=Agenda&itemId=15002&publishId=9871&isSection=false 
[17] https://www.montecitojournal.net/2024/06/04/where-should-we-build/