More Moves and Changes Downtown

By Ed Moosbrugger
Business Writer

March 6 -- Downtown Santa Monica¹s office market faces a big jump in vacancies when a major advertising agency relocates late this year, while on the retail scene the district appears to be holding up well compared to other areas.

Rubin Postaer and Associates will vacate 110,000 square feet of space in four buildings Downtown when it moves to Colorado Center (formerly the MGM Plaza) in Santa Monica to consolidate its operations under one roof. Real estate experts aren¹t sure how long it will take to absorb the space.

Vincent Muselli, owner of Muselli Commercial Realtors, thinks the departure of Postaer could push Downtown¹s office vacancy rate up about 5 percentage points.

Already, Muselli said, there hadn¹t been much improvement in the market in recent months. There has, however, been a lot of moving around, he said.

Randy Starr, a principal in Tenzer Commercial Brokerage, is a bit more optimistic, saying "I don¹t think the Postaer move will have that high of an impact" Starr, who represented the ad agency in the new lease transaction, said he already has considerable interest from potential tenants for Postaer¹s main 80,000-square-foot building on Second Street.

Although Starr thinks rents have dropped as low as they will go, he expects a market that favors tenants for at least 18 months.

Office rates that had been $3 to $4.50-a-square-foot at the market peak a few years ago have dropped to $2 to $3, he said. Some space is going for 15 percent less than a year ago, Muselli said.
Downtown has a few problems, including a parking squeeze for some office tenants, but also has many advantages, real estate agents say.

People like the ability to walk to many restaurants and shops. They also like the good climate, and there is less congestion than in some other areas. Tenants, Muselli said, ³are prepared to pay a little more for it."

Meanwhile, the retail market is marked by uncertainty, although the Third Street Promenade is doing better than many other areas in the region.

"Promenade rents are holding up pretty well," Muselli reported. And while more stores have turned over in the past year, there always seems to be someone to step in, he said.

"It continues to be a generally tough retail environment overall," but "the Promenade is holding up pretty well," said Robert O. York, a consultant for the Bayside District Corp.

York expects continued turnover on the Promenade, with some stores moving to side streets and others moving away.

Several major stores are scheduled to open soon on the Promenade.
American Eagle Outfitters will open its West Coast flagship store and the second largest in the clothing chain in space formerly occupied by the Discovery Channel Store at the corner of Arizona Avenue and the Promenade, York noted.

United Colors of Benetton will take the space vacated at the end of February by Midnight Special Bookstore, whose owner Margie Ghiz was forced to put its books into storage while it looks for a new location on Downtown Santa Monica or Hollywood.

Levi Strauss will occupy space vacated by Rag Factory. Victoria¹s Secret will open soon in the 1200 block of the Promenade, and Apple Computers is working on a location on that block.

Action isn't as strong on the streets around the Promenade, although the planned new Circuit City store in a former bank building should give Fourth Street a boost. Circuit City advertises a lot and is in a retail category that is not heavily represented Downtown, York said.

Because the consumer electronics store will utilize the public parking structures, it should create some pedestrian flow, he said.

Santa Monica Hotels finished 2002 with a mixed performance, according to final figures from PKF Consulting. Santa Monica posted a hotel occupancy rate of 74.6 percent for the year, up 6.2 percent from 2001. The average room rate, however, dropped 5.2 percent to $190.98.

Santa Monica as a visitor destination faces challenges because it relies on weakened markets, including international leisure travel and business travel from New York City, Boston, Chicago and the San Francisco Bay Area, according to a recent report by the Santa Monica Convention & Visitors Bureau and Lauren Schlau Consulting.

"³The key challenge for 2003 is to create value for those traveling despite economic negatives," the report said.

The visitors bureau has expanded the hours of its visitor center at Santa Monica Place to 10 a.m. to 6 p.m. daily. The center averages about 100 visitors a day, and foot traffic is growing.