Retail Is Changing In Santa Monica's Third Street Promenade, Silicon Beach
For years, the Third Street Promenade in Santa Monica, the heart of Silicon Beach, has been a shopping and dining destination.
But times in the outdoor pedestrian mall are changing. As tech companies continue to pour into Silicon Beach, some of the retail storefronts that lined the area are becoming creative office suites.
With the retail industry on the decline, several retailers have either left or are downsizing for smaller footprints, CBRE First Vice President Orbell Ovaness said. Ovaness specializes in high-end retail and grocery-anchored shopping centers.
“There’s just no need for a big footprint anymore,” Ovaness said. “Retailers are more focused on creating a much larger online presence and downsizing their storefronts. Landlords are either repositioning their property to creative office or creating smaller units.”
The Third Street Promenade attracts more than 11 million visitors a year, according to Downtown Santa Monica, a nonprofit that promotes the city’s business district. In 2015, the several-blocks-long outdoor venue along with the Santa Monica Pier brought in $517M in retail sales, according to the organization’s latest data.
Over the years, some of the retail storefronts in the area fell victim to shifting consumer demands. American Apparel and Nasty Gal went bankrupt, forcing them to close their storefronts at the Third Street Promenade.
Last year, the retail strip faced a 6% vacancy. Though that number appeared low, it was historically high based on numbers since the 1989 opening of the popular Third Street Promenade where spots would easily and quickly be gobbled up by another retailer.
“For many years, nobody would ever see a vacancy on the Promenade, and we would switch tenants before the buildings became vacant,” Tenzer Commercial Brokerage’s Barbara Tenzer told the Los Angeles Business Journal in August. “This is the most turnover that we’ve had in a long time — but it’s not just for this area, it’s all over the United States.”
Last summer, Barnes & Noble, an anchor property for 20 years, decided it would not renew its lease at the Third Street Promenade.
Some of those vacant stalls are now being replaced with creative office and mixed-use projects.
Co-working and wellness company Work Well Win recently announced it is leasing the 30K SF former Barnes & Noble space.
"Santa Monica is increasingly attracting large corporations to open satellite offices so they can accommodate the desires of their employees who want to live by the beach and nearby the entertainment center of the world,” Work Well Win founder and CEO Frank Bistrian said in a news release.
With tech companies and startups getting priced out of Silicon Valley, more are coming to Silicon Beach — the Santa Monica, Playa Vista and Culver City area. Southern California's lifestyle, proximity to beaches and larger office space for lower rent compared to Northern California are driving the demand for creative office space.
In January, Ovaness brokered the sale of the three-story Adidas and Burn Fitness building at the Third Street Promenade to two Beverly Hills-based investors for $30.3M.
Ovaness said Golden West Properties and Starpoint Properties acquired the 30K SF property at the Third Street Promenade to reposition it as a mixed-use building with ground-floor retail and creative office on the second floor.
Ovaness said retail is going through a transition right now and that people want more of an experience when shopping inside a building.
“People want to feel involved,” Ovaness said. “They want to touch, feel, experience something. It’s very important to have this. This is the new retail norm.”
Find out more about what is shaping the future of Silicon Beach at Bisnow's Silicon Beach 2018 event May 9 at The Bluffs at Playa Vista.