How will Amazon impact downtown Santa Barbara?

Amazon set to take over Saks Fifth Avenue | Image: Emilia Jane Photography

AMAZON DOWNTOWN

Fortune 500 company Amazon is making waves in Santa Barbara. Jeff Bezos, Amazon's founder and the richest man in the world, has decided to set up shop in the once-prominent Saks Fifth Avenue building in downtown Santa Barbara. Over the last few years we have seen how Amazon has grown its presence in Santa Barbara, with its ownership of Whole Foods, the Amazon@IslaVista pick up location, and through the company's acquisition of the Santa Barbara startup Graphiq (formerly FindTheBest) to further develop its virtual assistant, Alexa.

The 47,000-square-foot Saks building on State Street is getting a facelift in anticipation of its new tenant set to move in later this year. Construction crews set up scaffolding around the building as they prepared to widen the windows to create more sunlight for the second floor. The interior of the building has also been gutted — gone are the escalator and other interior features. Sources have estimated that Amazon will pay more than $2 million in annual rent for the building, the highest of any tenant in Santa Barbara history. A portion of the ground floor will be retail space and the rest for a growing local Alexa research team. Jobs for the Alexa team have been posted and are drawing tech talent near and far.

Saks Fifth Avenue building on State Street in downtown Santa Barbara undergoing renovations for Amazon's arrival | Image: Joshua Molina / Noozhawk

A strong retail presence for Amazon would rattle the retail landscape downtown. The arrival of the company itself adds a layer of prestige to a city that has struggled to keep its downtown vibrant and relevant, amid a slow but sure exodus of large retailers and independently owned restaurants. Analysts say more hybrid, mixed use, and innovative ideas are going to emerge in the next two years in the struggling retail area.

Amazon's Virtual Assistant Alexa uses Graphiq technology | Image: David Becker Getty Images / LA Times

LEASING DOWNTOWN

Hayes Commercial Group released a report that shows downtown Santa Barbara is growing into a hotbed for technology companies, a rising trend since the 2008 recession with nearly 70 technology companies emerging in downtown Santa Barbara over the past 10 years.

In the State Street corridor downtown, there are many concepts being evaluated. They include more seasonal pop-up store clusters as shoppers saw in the former Macy's site on State and Ortega. The city is also seeing if there is interest in occasional full-block street closures with more outdoor dining patios, entertainment, and new lighting to attract foot traffic and create a new environment. A trial to test that concept is expected before summer this year.

Leasing is surprisingly up considering the attention the large vacancies have been receiving; 22 leases including renewals were signed in 2018. Large vacancies that are still up in the air include the Macy's space, the former Verizon store, the empty Tonic nightclub, the closed Aaron Brother's store and the Staples building. All are in a four block area. This year, expect to see additional tech companies arriving, along with breweries, restaurants and home furnishing stores.

10 year increase of technology companies leasing office space in downtown Santa Barbara | Image: Hayes Commercial Group / Noozhawk

COMMERCIAL REAL ESTATE

Commercial real estate broker Greg 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."

Amazon leased 46,800 square feet at 1001 State Street | Image: Joshua Molina / Noozhawk

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."

There's a reason why the world wealthiest man, Jeff Bezos, is drawn to Santa Barbara and has invested in commercial real estate, market stores and a startup company; he sees opportunity in what is fast becoming known as "Silicon Beach" right here in Santa Barbara, California.