Entertainment and High-Tech Firms Add Space on Westside

The entertainment industry has almost quadrupled its office space on the Westside in the last decade, while government and insurance companies have vastly increased their presence downtown, according to a new study of tenants in Los Angeles County’s two biggest office markets. Law firms remain the biggest space users in both areas.

The survey provides statistical documentation of trends that brokers have observed anecdotally for some time, and it demonstrates how changes in L.A.’s economy and business community are reflected in the demand for office space.

Research by commercial real estate brokerage Julien J. Studley Inc. revealed that entertainment firms now occupy nearly 16% of the 39.4 million square feet of the office space in L.A.’s Westside markets, compared with only 4.1% in 1989. The report shows a growing demand for space by high-tech and telecommunications firms, which were hardly a factor in either market in 1989, and a shift by insurance companies from the pricey Westside into more economical downtown digs.

Demand for downtown banking and financial space has fallen precipitously as a result of bank mergers, for example, while new types of businesses such as software developers and computerized special effects firms have sprung up on the Westside as a result of the computer and Internet revolutions.

“These figures basically show the changing face of the L.A. business world,” said Howard Sadowsky, vice chairman of Studley. “For example, there’s probably not an entertainment company on the Westside that hasn’t increased its space threefold, and some have even quadrupled their needs.”

The huge spurt in entertainment industry demand reflects both the industry’s growth and the desire of company executives to work closer to their homes on the Westside, said Sadowsky and Jerry Porter, president of the Metrospace/Cresa brokerage.

Porter said Metrospace surveys in 1996 and 1998 showed how rapidly the show biz embrace has taken place. “We mapped entertainment companies on the Westside at the end of 1996, when the market was still languishing, and we came up with 75 companies,” he said. “We updated the map last summer, and we ran out of space to write the company names when we hit 200.”

Business classifications that didn’t exist 10 years ago account for some of the fastest expansions today, according to Sadowsky. Computer-based special effects companies are taking warehouse space and turning it into offices, he said, while gaming companies, software developers and Internet-related enterprises are gobbling space in huge gulps.

“They seem to go from 2,000 square feet to 20,000 square feet overnight,” Sadowsky said.

Porter provided cases in point: Online toy marketer EToys has grown from 6,000 to 60,000 square feet in the last two years, while GeoCities doubled from 25,000 to 50,000 square feet in the same time. And CyberMedia, a software developer, grew from 20,000 into 60,000 square feet before being acquired by Network Associates. CyberMedia vacated its offices in a Santa Monica business park after the acquisition, but the space was soon subleased to U.S. Web.

In contrast to the Westside, downtown Los Angeles has struggled to find new users for space vacated by banks, corporate headquarters and out-of-town law firms that grew rapidly in the late 1980s before abandoning or sharply downsizing their L.A. operations.

Nonetheless, new users have emerged in the central business district and some existing tenants, including locally based law firms, are slowly filling the empty space. Local law firms and other businesses have filled all of the space that was once leased by out-of-town legal firms that came to Los Angeles in the late 1980s, said Brian Ulf, a broker at Cushman Realty Corp.

At one time in the early 1990s, more than 1 million square feet of space rented by law firms was available for sublease at bargain rates after most of those firms either left the city or downsized. “Most of the out-of-town law firms never took hold and never needed all the space they thought they would need,” Ulf said, “but the Los Angeles firms have remained stable and have grown.”

Despite the missteps by out-of-town attorneys, the Studley study shows law firms have remained the biggest users of space both downtown and on the Westside. Lawyers take up approximately 38% of downtown’s 34 million square feet of space and 27% of the Westside space, compared with approximately 43% and 29% respectively in those markets in 1989.

Ulf said a substantial portion of the downtown offices abandoned by law firms are now occupied by insurance companies, which are attracted by quality space at comparatively reasonable prices. “Space is 50 cents on the dollar in downtown, versus the Westside, plus there’s a good labor pool and good transportation,” Ulf said. His remarks are borne out by the Studley survey, which shows insurance companies now occupy nearly 6% of the downtown space, compared with just under 3% in 1989. Over those 10 years, the amount of Westside space occupied by insurance firms has declined from 11.4% to 6.1%.

Among those that have moved from the Westside to downtown is J&H; Marsh & McLennan, an insurance brokerage and consulting firm, which occupies approximately 160,000 square feet of space on eight floors at 777 S. Figueroa St., a 53-story office tower completed in 1991. The office, with approximately 700 employees, is the third-largest in the country for the New York-based firm.

Margaret Liptay, managing director at J&H; Marsh & McLennan, said cost was the major factor in the company’s decision to consolidate downtown in 1997 after Johnson & Higgins merged with Marsh & McLennan. She explained that Marsh & McLennan was already in the Figueroa Street building, but Johnson & Higgins occupied space in Century City, so the merged company could have consolidated in either location.

“Our No. 1 reason was the economics. No 2 was the centralized location near major highways and freeways,” Liptay said. The downtown location is close to her company’s clients as well as other consulting and accounting firms. She also described downtown space as first-class and said the company believes in the future of the central business district.

“There really is a lot happening here with the Staples Center, the new cathedral and other things that are happening downtown,” Liptay said. “We see where the city is going and we think it’s a good place to be.”

Another growing user of downtown office space is arguably the most unusual and unexpected of new tenants: the telecommunications firms that now occupy nearly 4% of the space in the central business district, compared with less than one-tenth of 1% 10 years ago. In contrast with most labor-intensive businesses, the space is occupied almost entirely by switches and other telecommunications equipment, with very few employees on site.

The telecommunications firms have filled a cluster of downtown Los Angeles office buildings that sat mostly empty or abandoned for years, including the 700 Wilshire building and 530 W. 6th St., as a result of the companies’ need to locate near the hub of downtown’s local and long-distance telephone networks. The area is anchored by a Pacific Bell/AT&T; facility at 420 S. Grand Ave.

While the Studley survey focused only on downtown L.A. and the Westside, Sadowsky said a study of any Los Angeles County market would probably show other shifts in the tenant base attributable to the region’s changing economy.

In the South Bay, for example, managing broker Pete Toughill of Lee & Associates said a vast amount of office space emptied out by aerospace firms after the end of the Cold War has been filled by other businesses--notably automotive, computer-related, accounting and telecommunications firms.

Toyota has leased more than 250,000 square feet of space in Torrance within the last four months, Toughill said. Two or more national accounting firms have signed leases in the 50,000-square-foot range in recent years, he said, and much of the remainder of the space is filling up.

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Tenant Shifts

Law firms use the most space in Los Angeles County’s two largest office markets, just as they did in 1989. A comparison of industries’ space use between that year and today also shows the entertainment business has almost quadrupled its presence on the Westside, while high technology is growing at an even faster rate. Corporate and financial tenants left downtown, while government, insurance and advertising tenants moved in, according to statistics compiled by Julien J. Studley Inc.

Westside

Legal

1989: 28.9%

1999: 26.7%

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Entertainment

1989: 4.1%

1999: 15.9%

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Corporate

1989: 16.4%

1999: 12.8%

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High technology

1989: 2.3%

1999: 11.2%

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Advertising

1989: 7.8%

1999: 6.1%

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Insurance

1989: 11.4%

1999: 6.1%

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Banking/financial

1989: 8.4%

1999: 5.7%

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Accounting

1989: 6.1%

1999: 4.3%

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Stock brokerage

1989: 3.8%

1999: 2.4%

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Other

1989: 10.8%

1999: 8.8%

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Downtown Los Angeles

Legal

1989: 42.7%

1999: 38.1%

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Corporate

1989: 17.5%

1999: 14.1%

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Banking/financial

1989: 16.3%

1999: 9.8%

*

Accounting

1989: 8.2%

1999: 6.4%

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Government

1989: 1.1%

1999: 6.2%

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Insurance

1989: 2.7%

1999: 5.8%

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Stock brokerage

1989: 7.3%

1999: 4.9%

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Telecom

1989: 0%

1999: 3.8%

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Advertising

1989: 1.7%

1999: 2.5%

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Other

1989: 2.4%

1999: 8.4%

*

Source: Julien J. Studley Inc.