Market Report: Santa Monica

Santa Monica’s retail sector grapples with several challenges, notably a decline in tourist numbers compared to pre-pandemic levels and a reduced daytime working population due to the rise of hybrid work arrangements. The targeting of luxury stores by criminal activity, particularly around 3rd Street Promenade, adds to the difficulties faced by the area.

Resultantly, the annual net absorption for retail properties in Santa Monica has been negative for the past six years, with projections suggesting a continuation of this trend into 2023. The vacancy rate, on an upward trajectory since 2016 when Santa Monica’s retail sector was among the tightest in the metro, currently stands at 13.2%, signaling potential higher vacancies in the near term as move-outs may contribute to this figure.

Leasing activity has decelerated, with some tenants downsizing their footprint. On a positive note, strip centers have demonstrated resilience in the past two years, witnessing a decline in the vacancy rate from 12.2% to 6.1%. Given Santa Monica’s mature retail landscape, strip centers often attract tenants who traditionally occupy smaller spaces in power centers, as the submarket lacks power centers in its retail infrastructure.