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Retail Vacancies on Santa Monica's Promenade Offer Opportunities, Downtown Officials Say

 
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Santa Monica Travel and Tourism

Harding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore
Kutcher & Kozal, LLP

By Jorge Casuso

July 26, 2017 -- About a dozen stores on the Third Street Promenade are vacant or waiting for new tenants to open their doors, posing unique challenges -- and opportunities -- for the popular Santa Monica shopping strip, according to Downtown officials.

The turnover comes as the beach city's central business district faces increased competition from the ubiquitous rise of online shopping and from neighboring destinations that are undergoing hugely expensive renovations.

The closed doors on the Promenade recently prompted the real estate news website "The Real Deal" to report that "the retail apocalypse is taking its toll" on Santa Monica's internationally renown destination.

Santa Monica's Third Street Promenade
Third Street Promenade (Courtesy DTSM, Inc)

While Downtown officials acknowledge that a significant number of businesses on the Promenade have been closing their doors, they disagree with the website's dramatic characterization.

"Because things ae shifting doesn't mean they're bad," said Kathleen Rawson, the Chief Executive Officer of Downtown Santa Monica, Inc. (DTSM), which runs the City's central business district. "We're not sending sirens and alarm bells."

"There's a lot of turnover, and when businesses go out, it takes a little time to reset," said Rob York, a longtime real estate development consultant for DTSM, Inc.

Recent vacancies include the large space on the Promenade that was occupied by Nasty Gal and the medium-sized space that housed American Apparel before both companies filed for bankruptcy and closed all their stores, York said.

Early next year, Barnes and Noble will vacate the large corner building at the northeastern end of the Promenade, he said, while the Adidas outlet on the same side of the block will move to a new location further south on the strip, where there is more foot traffic.

Downtown officials, who recently established a Retail Tenancy Committee, see the recent spate of vacancies as an opportunity to attract businesses that reflect major changes in the retail market.

"The challenge that we have here is that retail is fundamentally changing and shifting," Rawson said. "We need to be more nimble. It won't be business as usual. We need to help business owners adjust to that."

With the rise of online shopping, customers who traditionally were lured by sales and new products are seeking a more complete "experience" when they visit a shopping destination, Rawson said.

"This conversation is not unique to us," she said. "The 'shift' is to have things shift and change. (Visitors) are going to run into a different experience every time, and retail is going in that direction."

Santa Monica's Downtown has an advantage over competitors that have relied almost exclusively on shopping, Rawson said.

"What sets Downtown Santa Monica apart is that we have not been entirely reliant on retail," she said. "We have some of the best restaurants in the country, we have street performers, we have more residents than other shopping venues."

Still, there is room for improvement, especially when it comes to offering a vibrant nightlife, Rawson said.

"There's no place to dance, to listen to original music," she said. "It gets pretty quiet after nine, there needs to be more variety."

"A more vibrant nightlife" would also help attract local residents and hotel guests, who typically like to walk to dining and entertainment venues, said Kevin Herrera, DTSM, Inc's senior marketing and communication manager.

While Harvelle's on 4th Street remains the area's only nightclub, the shift is already beginning, York said.

"There's a slew of new restaurants and more are coming," he said. "Hotels are coming on line and more hotel activity is in the development pipeline."

But there are challenges facing any new business moving to the Promenade, which fetches some of the highest rental rates in the region.

Ground-floor retail spaces typically go for $12 to $18 per square foot a month, Downtown officials said, and some smaller spaces can fetch "well north of $20," according to York.

"Rents have grown quite a bit over the past twenty years, and people are having a harder time forecasting their business," York said. "Growth and profitability are much harder to predict.

"When there's risk, you're looking for a little better deal," he said. "You're looking for flexible lease terms."

It also could mean looking at spaces on the streets around the Promenade, where rents are lower and businesses are willing to gamble on new concepts, officials said.

"We're seeing vacancies attracting (businesses) that may not have a brick and mortar (store) and want to test the waters or have new concepts they want to test out," Herrera said.

A good example is BookMonster, a South Korean used book, CD and DVD chain that opened its first U.S. outlet on Santa Monica Boulevard just south of the Promenade.

Another is the new Chase Bank with a Peet's coffee shop at the old Grigsby Automotive site on 4th street and Broadway.

But the Promenade's premium prices could also drive businesses to explore enticing options in competing venues that are seeing large influxes of private dollars, York said.

Westfield Century City, for example, is undergoing a more than $1 billion modernization and beautification project, while the Beverly Center is spending more than $500 million in renovations without adding any square footage.

"We have to get more creative and find ways to innovate," York said. "We have to create a great downtown environment to make sure we get the right mix."

“Because we're Santa Monica,” Rawson said, “doesn't mean we have to be complacent.”

 


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