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Downtown Santa Monica Economy Continues to Grow

Santa Monica Real Estate Company, Roque and MarkHarding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore Kutcher & Kozal, LLP

Pacific Park, Santa Monica Pier

Santa Monica Convention and Visitors BureauWhen one lives in a city as breathtakingly beautiful and unique as Santa Monica, inevitably that city will be shared with visitors.

By Rob York

March 13, 2014 -- After years of gradual improvements in the wake of the Great Recession, 2014 is expected to be a strong year of economic growth in Downtown Santa Monica.

In the months ahead, Downtown should outperform the regional economy, in large part due to its diverse economy, broad mix of uses, local patronage and desirable environment. In addition, 2014 will be significant for the planning and investment decisions that will shape Downtown and its prospects for many years to come.
 
During 2013, both businesses and consumers gained confidence in the economy’s direction. The improving business climate resulted in increased lending to entrepreneurs, business formation and expansion and new lease commitments.

Numerous retail and office vacancies have been absorbed, and previously dormant mixed-use residential developments are proceeding in earnest. As consumers began to feel more confident, both local patronage and visitor spending have increased.

Even with continued economic challenges in Europe and Asia, visitors from those regions have helped make Downtown Santa Monica’s hotel market among the strongest performing in the nation and driven significant spending at local businesses.

Retail and restaurants entered 2014 with significant momentum, and overall sales are now exceeding pre-recession levels. Restaurants, in particular, have had a strong showing in recent months. Coffee shops, cafes and full-service restaurants are opening and succeeding in locations that were not considered viable in the past.

New mixed-use, infill developments offer both new resident customers and more affordable ground-floor commercial space for small businesses. In addition, strength in Downtown’s office and leisure markets has benefited many of these new establishments.

However, the restaurant business is highly competitive, and increasing costs pose a challenge to both large chains and small restaurateurs. Overall, restaurant sales growth is expected to remain positive through 2014 as employment rates and household incomes improve.

Retail continues to be one of the key drivers of Downtown’s success. The City’s signature street, Third Street Promenade, remains one of the region’s most popular destinations. High-profile companies
continue to choose the Promenade as a location for their flagship stores featuring unique services and the newest prototypes, such as Downtown’s Apple and Converse stores.

This private investment is critical in a time when many retailers are reevaluating the number and size of stores needed in the age of online shopping. The Promenade has the opportunity to thrive in an evolving retail landscape of greater investment in fewer stores.

The geography of retail activity is also expanding as entrepreneurs open new retail and service businesses, from yoga studios to apparel boutiques, and formerly quiet areas of Downtown begin to develop distinct identities. 

Downtown office occupancy and rental rates have fully recovered and are now among the highest in the region. The area’s unique mix of Class A, creative and boutique office space is now performing well across the board, with average rents pushing $4 per square foot per month and a dwindling supply of available space.

Despite challenges, including limited options for rapidly growing firms, transportation and parking constraints as well as competition from emerging creative office districts elsewhere in the region, Downtown Santa Monica should remain a preferred office alternative for many businesses.

Downtown’s competitive edge is its authentic urban environment. Allowing Downtown to evolve while maintaining the vibrant and diverse commercial and social environment as envisioned in Santa Monica’s Land Use and Circulation Element will be paramount.

Plans for future public improvements and private investments continue to take shape in the context of a new Downtown Specific Plan that will guide Downtown’s physical environment for decades to come.

As a result, additional infill development should create ground floor commercial opportunities for independent businesses, provide residential options for local employees while reducing commuter traffic, and reinforce the area’s urban fabric for a more walkable environment.

The community is also considering the potential to punctuate Downtown with a handful of more significant developments that will allow greater architectural interest, help sustain the local economy and add community amenities that would otherwise be unobtainable.

Past efforts have led to demonstrable progress towards addressing several key priorities:

(1) transportation options serving Downtown will increase with the pending Expo light rail service,

(2) parking resources have been expanded with the reconstruction of Parking Structure #6, and

(3) state-of-the-art movie theaters are finally on the horizon with the announcement of a new theater complex at Santa Monica Place and perhaps a second movie complex on Fourth Street later this year.

The year 2014 should be a good one for Downtown, and current planning efforts may establish the framework for an enduring and dynamic City center. 

Rob York is President of York Consulting Group, LLC, and has advised Downtown Santa Monica on real estate development matters since 1991.

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