How New Zoning Helps Santa Monica Businesses Open and Expand

Santa Monica historically hasn’t been the top choice for many businesses looking to expand operations. Several socioeconomic forces in the last few years—such as the pandemic and subsequent rises in homelessness, crime, vandalization, and vacancies—rendered the Southern California city an operational liability, forcing many core businesses to relocate.

Even before that, Santa Monica had a reputation for being anti-business. In 2018, the Santa Monica City Council voted to ban the opening of new chains and fast food restaurants along the Third Street Promenade, downtown’s most high-traffic outdoor shopping area. The bill prohibited restaurants with more than 100 national locations from opening in the shopping area to protect small businesses. At the time, it appeared as though the city only cared about local commerce.

A tone shift occurred around 2022 when the city announced major new investments in Downtown Santa Monica development. Equal parts recovery from the pandemic and preparation for international events like the 2026 FIFA World Cup and 2028 Olympics, the plan signaled the dawn of a new era for Santa Monica businesses. A total of 14 mixed-use retail, hospitality, and multifamily developments were announced in Q4 2022, including The Miramar Santa Monica, Ocean Avenue Project, and 710 Broadway.

Now, strategic zoning and administrative changes announced in Q4 2023 have cemented Santa Monica as fertile ground for businesses looking to open, operate, and expand. The latest updates will remain through 2028 and include an expedited permitting process to save businesses time and money while offering more clarity on what the city allows.

Santa Monica Zoning and Administrative Changes

Santa Monica has worked quickly to expedite its permitting process. With the latest changes to the city’s zoning and administrative requirements, businesses can open faster and have more time to focus on future expansion. Here’s where businesses can expect to see changes.

Entertainment & Nightlife

Downtown Santa Monica is home to an array of restaurants, bars, hotels, and retail stores, many of which comprise or border the city’s premier shopping center, Third Street Promenade. Restaurants in the downtown area now have more flexibility to offer entertainment without a conditional use permit. Additionally, it is now easier for select businesses to obtain an Alcohol Exemption Permit, including those in entertainment and recreation, retail, and convenience markets. The city has seen a boom in nightlife with relaxed restrictions on dancing, arcade games, and amplified music requirements.

Food and Beverage

Santa Monica has lifted previous limitations on chain stores and extended the right to all full-service, limited-service, and takeout restaurants up to 5,000 square feet, including the ability to offer off-site alcohol. A public hearing is no longer required for restaurants to provide on-site alcoholic beverages. Additionally, more outdoor dining options have become available as the city lifted several restrictions limiting the number of restaurants per block, unenclosed rooftop areas, and dining on sidewalks, parklets, and private property.

Retail

The city’s push to welcome more businesses includes retail, too. As of Q4 2023, Santa Monica has lifted all limitations of formula retailers with a specified number of chain stores. In comparison, the city’s coastal neighbor, Malibu, enforces a tighter restriction on formula retail. In 2018, Malibu adopted Ordinance No. 431, which caps the number of formula retailers at 30% for shopping centers larger than 10,000 square feet. San Francisco is also notorious for its formula retail restrictions on retailers with 11 or more stores. The City of Santa Monica website states that retail establishments include “without limitation, any grocery store, department store, hardware store, pharmacy, liquor store, restaurant, catering truck, convenience store, and any other retail store or vendor.”

Property Uses

As the city evolves, many businesses are capitalizing on more lenient property use requirements. The change of use from a restaurant to another use no longer requires a public hearing while changes of use of commercial properties do not require additional parking if not part of an addition or enlargement. In other words, a change of use from a retail store to a restaurant, keeping property size the same, will not need to add more parking to accommodate the new use. Businesses like Barnes & Noble and the interactive experience Arte Musuem have leveraged a change of use to their benefit. Barnes & Noble scooped up a 21,000 square foot department store space for its new bookstore at Third Street Promenade, and Arte Museum replaced a 48,000 square foot movie theater at Santa Monica Place for its immersive art concept.

Santa Monica Business at a Glance

Combined data from CoStar, The City of Santa Monica, and Downtown Santa Monica, Inc. capture the latest updates to the city’s development, occupancy, and tenant mix in Q1 2024:

• New Development: As of January 2024, there were 39 new development projects. Nearly two-thirds have been approved, and approximately 23% are under construction.
• Retail Occupancy: As of February 2024, there were 573 ground-floor commercial spaces in Downtown Santa Monica, and 7.2% of their occupancy was undetermined. Among 532 spaces being determined for their uses, 81.4% were occupied.
• Hospitality Occupancy: The occupancy rate of Downtown Santa Monica hotels in Q1 2024 was 76.4%. Comparatively, the pre-COVID level in February 2020 was 82%.
• Tenant (Business) Mix: As of January 2024, there were 433 ground-floor businesses in Downtown Santa Monica. About a third were accommodation and food and beverage, followed by retail at 22.1% and beauty, health, and wellness at 20.1%.

The Place to Be (Doing Business)

In 2023, the city of Santa Monica saw almost 500 new businesses open, and it expects even greater expansion in 2024 and beyond. Nearly 50 of the new citywide openings were restaurants, bars, and food services, while new concepts like Pickle Pop—a recreational indoor pickleball complex—offer promise for the coastal city’s sustained business innovation. The city is also embracing its moniker as Silicon Beach: As home to over 3,000 creative and tech businesses that employ over 30,000 people, Santa Monica welcomes growth from businesses like a16z, one of the nation’s top venture capital firms that started development of its new office headquarters in downtown. Several new and renovated hotels, such as the Georgian Hotel, the Shore Hotel, and the Fairmont Miramar, have boosted the city’s hospitality sector.

Santa Monica has always been the place to be, albeit with a history of socioeconomic hurdles. But still, as more locals, transplants, and tourists frequent the city, from the edge of the Santa Monica Pier to Centinela, from North Montana down to Ocean Park, it maintains its classic Southern California allure. And where there’s activity, there’s business opportunity, whether in retail, office, hospitality, or something entirely unique.