Market Report: Santa Monica

The leasing landscape in Santa Monica’s retail submarket reflects a nuanced picture amid its renowned tourist attractions and vibrant local demographics. Historically supported by high visitor traffic and a bustling workforce, recent years have seen a notable shift in market dynamics. The lingering effects of the pandemic have curtailed tourist and worker footfalls, dampening consumer spending and contributing to a steady rise in vacancy rates, which now stand at 10.3%, surpassing many metro counterparts. Despite this, rent rates have shown modest growth, with an average annual increase of 1.3% over the past three years, albeit lagging behind the metro-wide average of 2.5%.

The leasing outlook is further shaped by a subdued construction landscape, characterized by minimal net growth in inventory over the past decade. While the current pipeline shows limited activity, with a single project on the renowned Third Street Promenade, completion of which is anticipated in 2024, the market maintains a unique pricing dynamic. Recent sales activity, albeit moderate, underscores investor caution amidst rising debt costs. With retail asset pricing averaging $820/SF, significantly exceeding the metro-wide average, Santa Monica presents an intriguing juxtaposition of leasing challenges and premium pricing, offering both opportunities and considerations for prospective tenants and investors navigating this distinctive retail landscape.