Downtown Retail Leasing Strong

By Ed Moosbrugger

May 27 -- Don't be misled by the recent closure of Toys R Us or the loss of such established tenants as Noteworthy and Table Manners. The Downtown Santa Monica retail leasing market is strong.

"There is still much demand for retail space in Downtown Santa Monica," said Vincent C. Muselli, president of Muselli Commercial Realtors. The market is much stronger than a year ago and should continue to improve, he said.

The strength is reflected in steady to rising rents, a continued influx of flagship-level stores and increasing interest by retailers in streets surrounding the Third Street Promenade. There is some turnover of tenants, partly because of rising rents when leases come up for renewal, but many of the spaces are filled quickly.

The market is "quite strong" now, said Robert O. York, a consultant for the Bayside District Corp., noting that the Third Street Promenade is almost fully leased, which is having a beneficial effect on the surrounding area.

"A number of pretty good retailers are getting more serious about 4th Street," he said, and are also looking at 2nd Street, which traditionally has not been as strong for retailers.

Although the Promenade remains the centerpiece, action has picked up on surrounding streets.

The cross streets are becoming more popular, and 4th Street is doing OK, said Barbara Tenzer, head of Tenzer Commercial Brokerage. She called the Bayside District retail market "strong."

Downtown's appeal has been enhanced by many strong performances by key retailers there, York said. "We're on the map now," he noted.

That's particularly true for women's clothing stores. "We've got such a depth and strength in women's apparel," York noted.

That image was enhanced with the recent opening on the Promenade of Zara, the first store in the region for the men's and women's apparel chain from Spain.

And Muselli reported the recent leasing of 1254 Third Street Promenade to Mango, a women's clothing retailer also based in Spain. Mango took the 7,500-square-foot space formerly occupied by Hennessey & Ingalls before it moved around the corner to Wilshire Boulevard.

It will be a flagship store and Mango's first in the United States, York said.

But while women's apparel is a particular strength, a wide range of tenants are moving to the area. Muselli mentioned restaurants, yoga studios, spas, shoes, jewelry, electronics and furniture. York noted home furnishings, food and jewelry.

"We're really showing tremendous strength in keeping an interesting tenant mix," York said.

Some recent openings reflect the diversity: Club Monaco, BOA Steakhouse, Wild About Music, Kid Robot, Panera Bread, Steelcase and Hard Tail.

More changes are coming.

There is speculation that the new owner of the former Toys R Us building at 4th Street and Santa Monica Boulevard is expected to divide up the space into smaller shops. That will provide an opportunity to upgrade the tenant mix on 4th Street, York said.

He noted that a high quality home furnishings store is slated to go nearby on 4th, and the Design Within Reach on Santa Monica Boulevard is expanding.

Muselli also believes that subdividing the Toys R Us space would be good for the area, offering the prospect for smaller tenants to move in.

Over on 2nd Street, a 24 Hour Fitness Express is taking almost 10,000 square feet of space formerly occupied by Silicon Graphics, which will add some life to the street, York said.

One of the chief appeals of Downtown remains the pedestrian nature of the Promenade.

"The foot traffic is what motivates everyone," Tenzer said. Steps to beautify the surrounding streets and entice pedestrians to walk there should improve retail prospects, she noted.

Rent levels reflect the relative appeal of the various streets. Typical rents on the Promenade range between $7.25 and $11.50 a square foot, steady to perhaps a 5 percent increase over last year, Muselli reported. On 4th Street rents are from $2.75 to $4 a square foot, up 15 percent, while 2nd Street is steady at $2.25 to $3.

"There is still a pretty broad spread in rents," York noted.

Although Downtown's retail market is strong, some issues still need to be addressed to keep it healthy, observers said. They include parking, the homeless, safety, modernizing the movie theaters and Santa Monica Place’s future.

"Most people (who) visit Downtown are unhappy with the changes made to Santa Monica Boulevard from 5th Street west," Muselli said. "Too much congestion and traffic backup."

Even with these concerns, however, Downtown's appeal remains strong.

"Everyone I speak with is positive and still very much up on the area," Muselli said.