By Sonia Fernandez, UCSB
Fourteen months into the COVID pandemic, it looks like we’ve overcome the worst: stores and restaurants are back on the move, mask mandates have been lifted, and we’re moving on.
But does this activity signal a return to normal?
That was the first question UC Santa Barbara economics professor Peter Rupert sought to answer at UCSB’s South County Economic Forecast Project Economic Summit 2022, the first in-person edition of the annual presentation in two years. Local businesses and municipal leaders were among those who gathered once again at the Granada Theater to get a sense of the state of the local economy.
Rupert was joined by Village Properties residential realtor David Kim, Gene Deering of Radius Commercial Real Estate and Josh Williams of BW Research. Office of UC President, Chief Investment Officer and Vice President of Investments, Jagdeep Singh Bachher concluded the discussions with a conversation about investing in turbulent times.
“The question is whether we are back to where we were, before the pandemic,” Rupert said.
The answer? A little, at least physically. Cellphone tracking data indicates that some locations, such as hotels and the local airport, have rebounded in terms of foot traffic. Restaurants and supermarkets, not quite.
As retail and hospitality warm up, the residential real estate sector continues to soar. After taking the same plunge as every other sector in the early quarantines, the trend quickly reversed as homes became staples for people enjoying the remote work lifestyle and for families in Los Angeles and other urban centers seeking to trade. urban life for a small town scene.
“We’re in a seller’s market,” Kim said. “Prices are on the rise. There is no inventory. The combination of low inventory and high demand is driving up the amount potential buyers are willing to pay, as they compete for a dwindling number of homes, he said. Competition among buyers is so intense that even potential sellers may choose to stay put rather than sell their home and join the fray, further reducing supply. According to Kim, about 50% of home buyers in South County these days come from out of town.
“Before the pandemic, the median home sale price was $1,290,000,” Kim said. “And where are we now, in 2022? The median selling price is $2,251,000. In the near future, he said, the local residential real estate market is expected to be affected by the limited number of homes for sale, supply chain issues, high construction material costs, labor shortages. labor and a potential recession.
Commercial real estate in South County, meanwhile, is executing sophisticated footwork, and nowhere is this more apparent than on State Street. Before the pandemic, it was an open road to Cabrillo Boulevard, but COVID-related social distancing and indoor occupancy rules have led to nine blocks being closed to allow restaurants space. outdoors to serve customers. Now plans are in the works to turn this makeshift facility into a permanent thing.
“If State Street is going to remain closed, we need to reallocate that street and we need to do it in a way that happens quickly,” said Deering, who presented a visual tour of commercial real estate in South County.
It’s not just the State Street Promenade; commercial properties all along the Upper State thoroughfare downtown are making changes. The former Nordstrom and Macy’s buildings are undergoing transformations from department stores to other uses, including offices, as is the former Enterprise Fish Co. building on Lower State Street. The move toward office space could revitalize commerce on the state, which was struggling with declining business and double-digit vacancy rates long before the pandemic.
“Hopefully this will encourage these tech tenants to come in,” Deering said. Other big changes in local commercial real estate include hotels changing hands – there have been nine hotel sales in the last 18 months – and apartments planned for the former Staples building on the 400 block of State. The Sears parcel at La Cumbre Plaza in the Upper State could also become residential, he said.
The labor market was also a hot topic at the summit, as presenters looked at who was working and who was not.
“If you just look at the employment rate…it looks like a fantastic job market, but there’s a lot of confusing stuff going on,” Rupert said. The number of jobs slightly exceeded the number of unemployed before the pandemic, a trend that was crushed when national stay-at-home orders halted business operations, leading to massive job losses. Unemployment has fallen and the number of job vacancies has since risen, with an even bigger gap between the unemployed and available jobs now than before COVID.
“We have more job openings than in the history of this data, and it’s much, much higher than the number of unemployed,” Rupert said. “So there are a lot of jobs available, but for some reason people aren’t taking them.”
Clues to this conundrum could be found in the labor force participation rate – an estimate of the number of adults able and willing to work at current wages. In general, the LFPR has been falling since 1949. It fell sharply in 2020 and has since rebounded, but not to 2019 levels.
The big resignation is not to blame, said Josh Williams.
“There’s a narrative going around that young people are dropping out of the workforce, and that’s the problem,” he said. “That’s not really true.” The labor force participation rate for 18- to 24-year-olds, he said, has recovered to about the same place as before the pandemic.
“What you see now is that these people know they have market power, and so they don’t take this job that pays minimum wage,” he said. “They don’t take jobs where they feel they don’t have a future.” He also attributed the decline in LFPR to longer-term trends in demographics, educational attainment, work culture and automation.
In Santa Barbara, meanwhile, trends affecting workforce resilience include an aging population, rising rents, housing and child care costs. According to Williams, the labor market will continue to be tight as workers return. Some will move, in search of more affordable housing and more opportunities.
“Businesses expect to grow over the next 12 months,” he said, adding that they will likely face challenges finding workers. The workforce could be strengthened, he suggested, by educating workers on better-paying career paths, helping them find childcare, expanding quality access to Internet, increasing the educational attainment of the county’s less-educated adult residents and supporting the expansion of housing options in work centers and transit hubs.