Deals being made; empty spaces will soon be filled
There has been a flurry of negotiations for storefront space in downtown Santa Monica in recent weeks.
Demand for commercial space along the Third Street Promenade has become so hot that big name retailers are seriously considering locations on Second and Fourth Street for the very first time, a city business consultant said.
“There’s a number of small independent stores and some more recognizable names looking at the area,” said Rob York, a Bayside District Corporation consultant. “It looks like we’re getting back on track and there is going to be more investment in the area.”
Santa Monica has been hit hard by a fall off in tourism and sales tax revenue from the current recession, especially since the Sept. 11 terrorist attacks. The city is facing an $8.8 million shortfall in projected sales tax revenue.
Vacancy rates downtown and along the Promenade hit a record high last fall. While retail space slumped only slightly, office space sunk to a 20 percent vacancy rate compared to an average of 4 percent in previous years, according to Jim Keyes, a commercial broker with Muselli Commercial Realtors.
Late last month, the Discovery Store announced it would be pulling out of its prime Promenade location on the corner of Arizona and Third Street. The company would like to sublease part of the building to lower its rent.
York didn’t know immediately what the Discovery Store is paying in rent per month, but he said it’s below market rate. Prime commercial space on the Promenade is currently priced out between $7 and $10 a square foot.
Bayside officials say they would like to see a large retailer in the highly visible, two-story space which anchors the block.
“It’s a large space and it’s an important corner,” said Kathleen Rawson, executive director of Bayside. “We think there will be plenty of interest from large retailers in that space, so we’re not too worried.”
York agreed that the corner is of great significance to the health and overall environment of the Promenade. He said the only drawbacks to the space is the unusual shape of the store and its high rent.
“It’s an important corner,” York said. “It requires somebody that is going to be a good strong active retailer, that will draw people up to the block.”
“Its important to have the lights on and have a very active space,” he added.
Despite the increase in leasing activity downtown, Keyes believes the Discovery Store’s pullout is a warning sign of worse things to come.
385,“There’s all kinds of warning signs and the city better catch on,” Keyes said, “This used to be the most attractive place for businesses to come, but now all these companies are pulling out because they don’t want to do business in Santa Monica anymore.”
Keyes pointed to a number of Promenade restaurants that have either closed their doors or moved to other locations. He said many business owners shy away from Santa Monica because it is not friendly to businesses.
“Getting permits or anything through planning and zoning is a bear,” he said. “(Business owners) just don’t want to go through the hassle.”
“Getting permits or anything through planning and zoning is a bear. (Business owners) just don’t want to go through the hassle.” — — JIM KEYES Commercial real estate broker
Concerned by the turnover of restaurants, the city council has appointed a seven-member committee to devise ways to bring more restaurants onto the Promenade. Earlier this year, the city council enacted a moratorium that prevents any restaurant space from being converted into retail stores.
Complicating those goals are the high rents along the Promenade and the depth of the commercial spaces, which are not conducive layouts for small shops, York said. As a result, many retailers are seriously considering locations just off the Promenade — which may possibly lead to an expansion of the downtown commercial core.
“Despite the somewhat slower economy, you still have expensive rents along Third Street,” York said. “The ability for restaurants and retail to do well on Second and Fourth has been proven now, and people are more comfortable now doing something there than say three or four years ago.”
“Hopefully that will firm up even more once we get past this construction phase we’re dealing with,” he added.
Business leaders said Santa Monica remains in an excellent position to attract new stores because of its tourism market and a relatively strong local economy.
Brokers handling two empty spaces on the Promenade are close to finalizing deals, sources said. The center court location where Cool Planet is located reportedly will be replaced by another large restaurant. However, local real estate brokers and business officials declined to specify what new stores would be assuming those leases until the deals are final.
York said the city has succeeded recently in attracting smaller boutique firms to the area, which make the Promenade and the downtown more unique. He pointed to Hype, at 1325 Third Street near center court — a small store concentrating on clothing for young women, as an example.
“The smaller unique operation has always been of interest,” he said, “and we are always trying to bring those downtown.”
Originally published in the Santa Monica Daily Press print edition on May 4, 2002. Read the original PDF.