Downtown vacancy near 20% as city implements realignment plan
SANTA MONICA, Calif. — At first glance, this coastal city of roughly 90,700 residents appears to have it all: palm trees along the Third Street Promenade, wide beaches, a historic pier with a Ferris wheel. But behind its scenic surface, the city spent the past several years contending with financial and social problems that its leaders say prompted it to declare fiscal distress in September.
Among the largest pressures, according to City Manager Oliver Chi, was about $230 million in sex-abuse settlements stemming from decades-old claims against a former IT employee. The city signed the first wave of settlements in March 2020, and the total has since grown to roughly 30% of Santa Monica’s annual budget, Chi said. Additional factors included a decline in international tourism and a downtown retail vacancy rate of about 20%.
The pandemic delivered the next blow. Hotel and sales tax revenue imploded, and the city laid off more than 400 municipal employees, roughly 20% of its workforce. During the civil unrest after George Floyd’s murder in May 2020, looters ransacked scores of downtown stores, traumatizing business owners.
More recently, Chi said, declining numbers of international tourists — a long-term economic lifeblood — have responded to President Trump’s policies. The January 2025 wildfires displaced thousands of affluent residents of nearby Pacific Palisades, dealing another blow to the city’s customer base.
The accumulation of problems became visible on the Promenade, a pedestrian mall that still hosts brands like Apple and Abercrombie & Fitch. Downtown retail and restaurant vacancy rates hit about 20%, among the highest in Los Angeles County, according to CoStar.
“It became not nice,” said A.J. Sacher, operations manager at the sports bar Barney’s Beanery, which he said suffered four or five overnight break-ins in 2020 and 2021. “Santa Monica is hyperdependent on tourism and hospitality, and so if it’s not a nice and safe place to be, they’re going to have major problems.”
Michael Mandel, co-owner of Pier Pizza & Subs on the pier, said mental-health crises and drug use in public spaces scared away families.
“The open consumption of drugs in public is absurd,” Mandel said, adding that the problem is not limited to Santa Monica but visible across Los Angeles. “You clean that up, you know, you start to see the streets get cleaned up again.”
With its warm, dry climate, Santa Monica has long attracted people without housing. In the 1990s, city officials fenced off Palisades Park because too many people were camping in it, said Jim Harris, executive director of the Santa Monica Pier Corp. “They’re more noticeable now because there are fewer other people,” Harris said.
Civic leaders say the city’s natural appeal and decades of good fortune bred complacency. The City Council in 2001 voted down a planned Target downtown, and in 2018 banned fast-food chains with more than 100 locations.
“It was an inertia that assumed the city could coast on its revenue and reserves without recognizing that both those were more fragile than people assumed,” said Rick Cole, who served as city manager from 2015 to 2020.
The car-free Promenade was an innovative concept decades ago, but Santa Monica did not keep up with competitors that added events and dining, Harris said. Now roughly one in four of the Promenade’s storefronts are closed. Santa Monica Place, an open-air mall two blocks from the beach, went into receivership last year after its owner defaulted on a $300 million loan in 2024. Nordstrom, its last remaining anchor tenant, closed in August after 15 years. The mall’s food court now operates a single eatery, a Sbarro.
Santa Monica has begun reversing some of its past policies. The City Council voted in 2023 to allow fast-food chains. Raising Cane’s Chicken Fingers recently opened on the Promenade, and Taco Bell Cantina announced plans to do so.
Late last year, the council approved a “realignment plan” designed to restore public safety, rebuild the local economy and stabilize finances. The plan includes more police patrols downtown, moving the downtown homeless shelter farther from the Promenade, creating an “entertainment zone” where visitors can carry open alcohol containers on weekends, cutting outdoor-dining fees, and implementing AI-based software to speed building and business permits.
The interventions are beginning to yield results, Chi said. Property crime has dropped, according to city statistics, and the police department is projected to be fully staffed for the first time in two decades. The city balanced its budget by drawing from reserves and squeezing additional revenue from higher parking fees and outdoor advertising.
At the pier, foot traffic is finally nearing pre-pandemic levels of roughly 12 to 14 million visitors annually, Harris said. The World Cup has helped: the pier hosted a Michelob Ultra-sponsored watch party, and soccer fans boosted business at Barney’s Beanery.
The 2028 Olympics presents another opportunity. Santa Monica officials have signed agreements with national delegations from France, Switzerland and England to host hospitality events during the Games.
“There was a real sense, I think, a year ago that maybe Santa Monica’s best days were behind it,” Chi said. But, he added, “it can still be one of the coolest places on the planet.”
“The real way to get back to prosperity is we need the local economy to thrive again,” Chi said. “What we can do is create an environment in the city that’s investable.”