Pacific Coast Business Times: Retail roommates share space, cut costs

In May 2018, what is now an innovative shared space in downtown Santa Barbara was an empty 2,200-square-foot site when Peet’s Coffee closed its location there.

About five months after the Bay Area-based specialty coffee retailer shut those doors, a retail co-op breathed new life into the facility fronting State Street. Mosaic Locale had a soft opening in October 2018 and a grand reopening in February 2020, just weeks before the first reported COVID-19 case in Santa Barbara County. Three local food retailers currently share the Mosaic property located at 1131 State St., across from the art museum.

“The landlord was very agreeable to trying it out,” Draughtsmen Aleworks co-founder Scott Stefan said. “However, not all of the spaces are cookie cutter.”

The site serves up empanadas from Buena Onda Empanadas, coffee from Old Town Coffee, and beer, wine and cider from Draughtsmen Aleworks.

Draughtsmen is the primary leaseholders for the Mosaic space. A shared space concept offers reduced cost of rent, compared with renting an entire building.

“Much like Santa Barbara living space, retail space is expensive,” Stefan said. “Roommates help share the cost.”

Co-working spaces have sprung up across the Tri-Counties over the last several years, offering more affordable options for businesses and organizations to rent shared work spaces instead of signing a long-term office lease. A space designed to be shared by several businesses, such as a collection of food-counter-style restaurants at the Santa Barbara Public Market, accommodates retailers and restaurants operating under one roof and offers spaces available for lease. The difference at Mosiac is that the businesses share a lease.

“When you have the (Santa Barbara) Public Market, you have a landlord trying to fill tenant spaces,” Stefan said, later adding, “We are 100% responsible for everything (at Mosaic).”

Rents are rising across all types of retail stores, according to May 2022 data from the National Association of Realtors. The NAR found that neighborhood centers and strip centers had the highest rent growth of nearly 5% year-over-year, the trade association’s data showed. Neighborhood centers are anchored by supermarkets, while strip centers are anchored by convenience or mini-mart stores, NAR said.

“Higher interest rates and inflation are having a mixed impact on the demand for commercial real estate,” authors of the report said. “The pace of absorption has slowed in the industrial and retail markets as consumers cut back on spending amid high inflation.”

The former Staples building at 410 State St. is on the market with proposed goals to house multiple retailers filling the 17,000 square feet of floor space. Radius Commercial Real Estate in Santa Barbara is marketing the site. The property owner is marketing the building for a shared open space, according to Gene Deering, a principal at Radius.

“The real estate of that building has some things going for it because it’s always going to have tourist traffic being on the 400 block,” Deering said.
According to the property listing, nine retail/office spaces, ranging from about 950 square feet up to nearly 4,600 square feet, could potentially fill the site.

As a customer, Deering said, retailers within a co-op space create an exciting and fun atmosphere.

“I’m a fan of it when it can happen, but it’s very difficult to put together from the owner standpoint,” he said.

Deering said there are challenges of finding tenants, finding tenants with synergy and those willing to make the timing work to open. Effective timing is critical to opening retail co-ops. For example, Deering said, if a space will have seven tenants.

“Those tenants don’t want to be the first open before their six friends are open,” Deering said.

Timing is everything.

“You need to time your build-out, getting permits and the construction element of it, so most of those tenants are done at the same time and they can open at the same time,” Deering said.