The city is losing both its Borders and Barnes & Noble bookstores, and it looks like discount clothing stores Marshalls and H&M are moving in.
Santa Barbara has seen a 40 percent increase in the amount of retail deals on downtown State Street this year, said Radius Group Commercial Real Estate broker Brian Johnson. But fueling much of that leasing activity are lowered-priced clothing boutiques such as Heavenly Couture, which prices all clothes at $15 and signed a lease on a spot on the 900 block earlier this year; and Dear Diary, a clothing boutique on the 900 block with many items in the $25 range.

Areas such as the 1000 block of State that previously has a handful of empty storefronts have completely filled up, Johnson said.

Hayes Commercial Group retail broker Michael Martz said empty store fronts gave regional and local stores the chance to swoop in on prime space.

The new stores also indicate that consumer habits have changed.

“The high-end retailers are actually doing pretty well” he said, noting that retailers such as Saks Fifth Avenue have posted strong earnings in recent quarters.

“Those high-end retailers are being more selective with their inventory,” he said. “And consumers are being more strategic in their buying. They’re going more for classic and timeless looks and buying maybe a gown that they can wear for more than one occasion.”

“On the low-end, the discount retailers are also doing well,” said Martz, who represented the landlord in the leasing of 1025 State Street to resale boutique Crossroads Trading Co. earlier this year.

“The segment that is still struggling is that middle tier,” Martz said. “Locally, if you walk downtown, on a lot of these blocks you’re seeing what once sold higher-end is now selling more reasonably priced products. …I think you’re going to see more of that going into next year, although we’ve seen the bulk of the turnover.”

State Street’s new tenants may be more oriented to bargain shoppers, but any deal is a good deal for the city’s still-recovering commercial real estate sector. As more storefronts start to fill up, landlords can expect to see lease rates “firm up a little more,” Johnson said.

Martz said he’s holding his breath to see how this year’s holiday season shapes up. “Buyers are out there, they’re not feeling as restricted. They’re out there buying gifts,” he said. “But we could see a lot more turnover if this is not a good holiday season.”