The city of Santa Monica is hoping to pump some life back into the Third Street Promenade by enlisting the help of an age-old attraction: booze.

Thanks to state Senate Bill 969, Santa Monica was able to designate the Promenade as an “entertainment zone,” meaning residents, tourists and the like can walk freely outdoors while enjoying an alcoholic beverage purchased from a participating business within the retail district.

The new ordinance is the latest effort by the city to revitalize the three-block stretch of the Promenade after nearly a decade of ongoing struggles, including a steady decline in tourism, ever-changing consumer spending habits and the overall operational structure of the retail district before and after the Covid-19 pandemic.

The entertainment zone, which will go into effect June 13, will operate only Fridays through Sundays from 11 a.m. to 10 p.m. – though the city has the option to expand the timeframe in general or for special events. It will stretch across the 1200 and 1400 blocks of the Promenade between Wilshire Boulevard and Broadway.

The aim is to increase foot traffic and attract new businesses as the Promenade continues its efforts to recover from the pandemic which served as a huge blow for the strip, said Ryan Hawley, vice president of retail brokerage at Jones Lang Lasalle, Los Angeles.

“(The pandemic) certainly put the death knell on the Third Street Promenade, but its downtick had started well before (the pandemic),” Hawley said, adding that the Promenade peaked in 2016.

This is reinforced by a nearly 18% decrease in the Promenade’s overall occupancy from 2017 to now.

Catered more toward tourists than locals, the shops along the Promenade truly struggled at the hands of decreased tourism amid the pandemic, Hawley said.

Physical challenges

Richard Rizika – founder of Beta Agency, a commercial real estate transaction and advisory platform based in El Segundo – also identified the pandemic as a turning point for the Promenade from a consumer behavior perspective.

“Retailers began changing formats,” Rizika said. “There was a lot of downsizing of store formats and looking for unique ways to show up … that were brand relevant, and not just in a formula environment where they historically have to just acquiesce. I think that’s really where (the Promenade) got into some challenges.”

He pointed to an increase in brands migrating to Westfield Century City and Abbot Kinney Boulevard because they embraced these strategies.

“Third Street got a little stale and out of style, and that hurt them,” Rizika said.

The size and shape of the Promenade’s lease spaces created limitations for stores on the strip to adapt to these new trends. 

“A lot of those spaces on the Promenade are big and deep spaces, and as we come out of (the pandemic), we don’t have retailers that are looking to backfill those types of boxes anymore,” Hawley said.

The best model for a retail store, according to Rizika, is having 3 feet of depth for every 1 foot of frontage. But because the Promenade’s lots expand to the property line, this is difficult to achieve there. Consequently, Rizika said it can be more difficult to merchandize.

Landlord structure

Another consideration for the Promenade is its ownership structure comprising multiple separate landlords for spaces as opposed to one owner calling the shots. While Hawley said it’s not realistic to have all the landlords come together to agree on rental rates, he finds that through greater collaboration, the landlords could find unity on their vision for the Promenade and work together on executing that vision.

Lucian Tudor, chief executive of Global Dining Inc. of California which owns 1212 Santa Monica on the Promenade, attributed the landlord structure to some of the struggles that restaurants and bars have been facing over the years.

As the Promenade began ramping up its retail presence in the early 2000s, Tudor said landlords realized they could charge higher rents.

“Because restaurants cannot afford the highest rents and it is much easier for retail to afford the rents, little by little restaurants and bars just disappeared from the Promenade,” Tudor said. “That’s been a part of the decline of (the) Promenade overall, because without the restaurants, you don’t have the same energy to the town. There needs to be a good balance between retail and restaurants.”

While this model can create some logistical hiccups, Rizika points to many successful shopping areas who have multiple landlords.

Tudor, who is also a board member for Downtown Santa Monica, said that nearly every business owner on the Promenade across retail, dining and entertainment are in favor of the ordinance.

“I think it’s the only chance for the Promenade to become a destination again,” Tudor said.

Addressing vacancy

As of late May, the Promenade was 78.6% occupied, up 3% year-over-year, according to Downtown Santa Monica. While the rate of vacancies has slowed, the Promenade is far from where it once stood. At the end of 2017, the shopping district was 95.7% occupied.

The entertainment zone ordinance is a step in the right direction for decreasing vacancy, Hawley noted, adding that he expects a fully occupied Promenade in the next five years.

He called out the 1200 block of the Third Street Promenade in particular as having a high vacancy rate right now and said experiential-type businesses will be the best way to fill those leases.

Pointing to multiple new owners of buildings in that block, Hawley said they are interested in doing deals “that are less attractive to institutional investors.” These owners see the Promenade as a long-term investment and are willing to provide incentives like improvement allowances for tenants.

“You’re going to start to see the economics get more attractive for these entertainment uses,” Hawley said, adding that he is already hearing increased interest from new tenants who were not considering the Promenade before the ordinance was passed.

Trying to establish a business-friendly perception, Santa Monica has enacted a number of other business-centric policies that have attracted new entrepreneurs to the area.

During the May 13 city council meeting when the entertainment zone ordinance was discussed, local business owner Motty Miranda shared during public comments why she chose Santa Monica for her business. Originally planning to open in the South Bay, Miranda said she pivoted after learning about Santa Monica’s streamlined approach to obtaining a liquor license.

Drawing a parallel between that effort and the ordinance for the Promenade, Miranda said she supported the entertainment zone.

“That program … was the reason we made the decision to open our business in Santa Monica,” she said. “… (By) the city having these programs, you are attracting not only more customers but also businesses, and that is something that the Promenade needs desperately.”

Safety concerns and checks

Not everyone is ecstatic about the new entertainment zone. At the May city council meeting, Downtown Santa Monica residents expressed concerns about potential noise, disorderly behavior, logistics and crime before the ordinance was adopted.

In response to these concerns, Lt. Ryan Gradle from the Santa Monica Police Department, said the city would be keeping tabs on increases in public intoxication citations, adding that there have been five in the area this year to date. There will also be additional police and security presence around the Promenade in line with the launch of the entertainment zone.

The city stressed that if safety issues arise, the program can always be terminated.

Hawley also pointed out the city’s rules including that drinks must be purchased from businesses within the Promenade and that participants will wear wristbands indicating they are over 21 as measures to protect things from getting out of hand.

“This is not an open container, free for all… The aim is to create a cohesive, collaborative environment,” Hawley said.