Retail Vacancies Down

By Ed Moosbrugger

March 3 -- Potential tenants are finding it increasingly difficult to find retail locations in Downtown Santa Monica because of a strong and improving market.

With the Third Street Promenade virtually leased up, more retailers are looking to the surrounding streets, helping spread the retailing wealth.
“Things are booming,” said Barbara Tenzer, head of Tenzer Commercial Brokerage. “It’s probably the best it’s been for a very long time.”

With the Promenade full, the challenge is to push more retailing onto the surrounding streets, said Robert O. York, a consultant for the Bayside District Corp.

Fortunately, more retailers are taking a look at the streets around the Promenade.

“They’re all getting stronger,” York said. “There are more and better stores looking.”

The reasons for the strong retail market Downtown are fairly simple.
“Retailers are doing well,” Tenzer said. “People want to open new locations and concepts.”

Action on Fourth Street reflects how Downtown is changing.

A West Elm furniture and accessories store recently opened at 1433 4th Street in a new mixed-use building. It is one of only three West Elm stores in California for Williams-Sonoma Inc., which also owns Pottery Barn.

“They’ve been very well received,” York said. “They have very strong numbers.”

Just up the street, REI, a retailer of outdoor recreation equipment and apparel, is redoing a big chunk of the former Toys R Us store. The new REI store will take about two-thirds of the former Toys R Us space, York noted.

York reported that good independent and chain retailers are looking Downtown.

Fourth Street has “really got some momentum right now” and “a handful of pretty good restaurant operators are taking a look at Second,” he reported. The restaurants have seen that locations on Wilshire Boulevard and on Fourth Street have worked, York noted.
East-west streets are also doing well.

“I think Santa Monica Boulevard has picked up as a good retail street,” Tenzer said.

Indeed, the cross street locations nearest the Promenade are pretty well leased.

Austria-based jeweler Frey Wille recently opened its first U.S. store on Arizona Avenue. Rocky Mountain Chocolate Factory is currently refurbishing the former Table Manners space also located on Arizona near the Promenade.

The action on the side streets is understandable.

Retailers who want to go on the Third Street Promenade either have to wait or buy another tenant out, Tenzer said.

With retail space in short supply, rents are increasing on streets near the Promenade.

Promenade space is going for prices between $8 and $12 a square foot and sometimes higher for smaller spaces, York said.

Space on cross streets such as Santa Monica Boulevard adjacent to the Promenade are renting for $5 to $8 or $9 for smaller spaces, which is up substantially from a year ago, he reported.

Stores on the east-west streets have the advantage of 50-foot depths, rather than the 150 feet on the north-south streets. The smaller spaces are more appealing to many retailers.

Rents are lower on 2nd and 4th streets.

“Fourth Street is more expensive than Second Street, but is still a relative bargain,” York said.

New retail spaces need to be built to accommodate demand, he said.
Development on existing surface parking lots, probably as multi-use buildings, is one possibility.

York believes surface parking “sucks the life out of pedestrian streets.”
Other challenges facing Downtown, he said, are parking, figuring out the future direction of the movie theaters, determining how to address the retail/restaurant mix and the redevelopment of Santa Monica Place.
Tenzer thinks there are still problems with the parking structures and the homeless situation.

Not too many years ago retailers were turned off when Tenzer took them on tours of Downtown and wouldn’t open stores, but now, they are more willing to come because of the strong retail scene.

And little wonder.

“The health of the Downtown market is very strong at this time,” York said.

FINAL HOTEL NUMBERS for 2005 are in, and Santa Monica posted a slight gain in occupancy and a big increase in room rates.
Occupancy at hotels tracked by PKF Consulting rose 0.6 percent to 78.25 percent in 2005, while the average room rate jumped 8.9 percent to $234.36.

Improved results in December helped. Occupancy for the last month of 2005 rose 5.1 percent to 61.6 percent, and average room rate rose 9.4 percent to $234.90.

In other news on the hotel front, it was announced in late January that Colony Capital of Century City and a Saudi prince plan to buy Fairmont Hotels and Resorts of Canada, whose operations include the Fairmont Miramar Hotel Santa Monica.