Kilroy Starts Next Phase of Westside Media Center

Citing the rising demand for office space from entertainment, technology and media companies, El Segundo-based Kilroy Realty Corp. has broken ground on the second phase of its $100-million development at Olympic Boulevard and Bundy Drive in West Los Angeles.

Kilroy said it believes that the project, for which the company received city permits in January, is the first new major office complex to be approved in Los Angeles in nearly 10 years.

The development, called Westside Media Center, has been designed to appeal to the television and film production companies, Internet-related firms and high-tech companies that have been crowding into West Los Angeles, Santa Monica and other Westside office markets for the last several years, according to Mike Branigan and Andy Fishburn, senior vice presidents at Kilroy, a publicly held real estate investment trust.

Westside Media Center, which is on a seven-acre site, also signals another trend in Southern California office space: out instead of up. The twin buildings of its second and third phases will be four stories each because many tenants today favor low- to mid-rise offices instead of skyscrapers.

Kilroy is building the 150,000-square-foot second phase of the nearly 400,000-square-foot development on “spec”--or on a speculative basis, meaning construction has begun with no tenants signed up, in contrast to “build-to-suit” projects that developers start only after tenants have signed up.

But the developer believes plenty of tenants will be lining up by the time the building is completed in September 2000. Branigan and Fishburn cited Kilroy marketing studies showing a prospective demand for 2.5 million square feet of new office space in Westside markets, with 70% of that demand being for low- to mid-rise space instead of high-rise.

“They’ll probably have a lot of their space leased by the time the project is done, or soon after,” said Westside broker Vince Pellerito of Cushman Realty Corp.

Pellerito noted that other nearby projects, the 195,000-square-foot Arboretum Gateway and the 134,000-square-foot Arboretum Courtyard in Santa Monica, are expected to be leased at or soon after completion within the next month because of soaring demand from technology, media and Internet-related companies.

“The tenants going into these buildings are all looking for creative space--open ceilings, cement floors, exposed ducts, operable windows--and they’re willing to pay a premium for it,” Pellerito said. Kilroy’s project will feature “loft-style interiors with open ducting, one-foot thick floors that accommodate all manner of technological wiring, balconies and patios” and landscaping with plenty of outdoor seating, the company said.

Demand for office space in general is strong and demand for so-called creative space is even stronger in Westside markets, according to Pellerito. He said a recent Cushman Realty Corp. report showed that the overall vacancy rate in eight Westside markets recently dropped below 10% for the first time in almost 20 years.

Vacancy rates were lower than 10% in every Westside market except the Miracle Mile, where it was 15.2%, according to the Cushman report. Vacancies in the seven other sub-markets of the Westside ranged from 5.2% to 8.6%. Real estate experts say a vacancy rate under 10% usually indicates strong demand and a need to build more space.

Not just any space will do, however. Pellerito said builders must be careful today because different types of tenants want different types of space.

Traditional office users such as lawyers, accountants and insurance companies usually prefer traditional space, he said, and media and entertainment companies favor low-rise campus environments. In Orange County, high-tech and biotech companies are filling low-rise and tilt-up office and industrial space, rejecting corporate towers.

All of these trends illustrate how difficult it is to describe the Southern California office market or even the Los Angeles office market in general terms, Pellerito said, because conditions, and the types of space preferred by tenants, can sharply differ from market to market.

Kilroy’s Westside Media Center includes a first-phase, 80,000-square-foot building, occupied by National Digital Television Corp., that Kilroy created by rehabilitating and retrofitting an existing building. The Media Center is being designed by the Los Angeles office of Dallas-based HKS Architects Inc., with Charles Pankow Builders of Altadena as the contractor. The company expects to begin construction of the 150,000-square-foot third phase next year.

Kilroy shares rose 44 cents to close at $22.88 on the New York Stock Exchange on Monday.