Ebb Tide for Marina Offices
A few years ago, the energy, cash and cachet of the dot-com world flowed into a forgotten piece of industrial Los Angeles located just east of Marina del Rey’s yacht slips and gleaming condominium towers.
Now, the same area resembles more of a dot-com graveyard.
Commercial space in the small patch of Marina del Rey that was nearly filled with rapidly growing Internet firms and other companies last year is now more than 20% vacant, real estate brokers say. Rents have dropped by at least 25% and are falling still.
On Del Rey Avenue, the only thing left of Hydrogenmedia.com’s local outpost is the name on the front door. At mid-block on Glencoe Avenue, a “For Lease” sign hangs on a renovated brick warehouse left empty when the former Internet tenant ran out of cash. Nearby on Redwood Avenue, a giant pile of expensive Aeron office chairs sits in the darkened space once leased by a dot-com consultant.
“Whoever is still there has downsized, and those that have not made it are gone,” real estate broker David Toomey said.
This corner of Marina del Rey--like other high-tech enclaves in California and around the nation--is feeling the effect of industry layoffs and cutbacks. Internet companies have announced more than 120,000 layoffs since January 2000, according to Challenger, Gray & Christmas Inc., an employment consulting firm.
After riding the dot-com boom for a few years, the Westside real estate market has been undermined by the ripple effect of Internet firms that have failed or retrenched, such as EToys in West Los Angeles and MarchFirst Inc. in Santa Monica.
As a result, the amount of unoccupied Westside office space has swelled by about 1.5 million square feet since last fall. The vacancy rate has doubled to more than 10% while asking rents have flattened or dipped slightly after years of steady increases.
Many Internet tenants left as fast as they came, forcing landlords across the Westside to reduce rents and find replacements for their short-lived “new-economy” tenants.
Bargain-hunting architects, entertainment companies and design firms have taken up some of the dramatic dot-com offices. But it probably will take years for the market to recover, and Internet firms are not expected to play a big role.
“The location is fantastic,” said Joe Tang, founder of Guidance Solutions Inc., an Internet development firm in the marina. But “I don’t think it will be as dot-com-heavy as it once was. I don’t think that anyplace will be.”
In the late 1980s, stretches of Del Rey, Glencoe and Redwood avenues began gentrifying with the arrival of a few small advertising agencies, entertainment production companies and design firms. The pace of change went into high gear in the late 1990s when Internet and other companies that could not find or afford space nearby in Santa Monica or Venice began looking for second- and third-tier locations.
“People asked, ‘Where is the next place to go?’ and Marina del Rey seemed to be the logical location,” said developer Steaven Jones.
In a few years, Jones and other developers rushed to convert nearly 500,000 square feet of old industrial buildings in the marina into so-called creative space for entertainment and Internet firms. Freshly sandblasted buildings landscaped with ornamental grasses and outfitted with skylights and miles of wiring sprouted next to auto towing yards, self-storage centers and lots selling piles of firewood.
“People didn’t mind,” Cresa Partners broker Toomey said of the hodgepodge of buildings and semi-industrial setting. “The creative tenants wanted to be in brick warehouse buildings, and this is where you could find them. They wanted to create their own environment within their own four walls.”
Many of the fast-growing dot-coms that settled in the area quickly locked up more space than they needed to guarantee future expansion room.
After Guidance Solutions moved into a 10,000-square-foot former garage on Del Rey Avenue in mid-1998, the company soon leased and renovated other neighboring brick buildings--which once housed everything from a candle maker to a pornography distributor--to form a compound.
“We’re just bursting out the building and expanding,” Tang said. “We took the space ahead of when we needed it.”
But it turned out Guidance Solutions was overly ambitious because it has subleased one of the buildings to non-Internet firms. “I wouldn’t think we would be using that building in the next 12 months,” Tang said.
Most of the neighborhood’s other Internet tenants also have given up space--if they’ve survived, that is.
On Glencoe Avenue, a sleek complex of warehouses and new buildings has remained mostly empty despite asking rents that are at least 25% below last year’s levels. The only occupant is a German production company, and negotiations are underway with a technology tenant that broker Michael Arnold emphasized is not a dot-com.
“A lot of these technology companies are taking the dot-coms off their names,” said Arnold, who works at CB Richard Ellis.
With space being subleased in Santa Monica at deep discounts, there is less reason for firms to consider Marina del Rey and other secondary locations, brokers say.
“We’re not at the bottom,” Toomey said. “Most of the companies that would have leased this space are gone.”
But one of the beneficiaries of the slump has been architect David C. Weisberg, whose company moved into one of the former Guidance warehouse buildings in June after a 15-month search.
Working under a skylight punched through a soaring ceiling, Weisberg said he got the space and location he wanted for less than he was willing to pay.
“I think we caught the wave at the right point,” said Weisberg, a partner at Wimberly Allison Tong & Goo. “We could not have gotten it” last year.
Despite the closures, the area remains home to a number of Internet companies--including BizRate.com and Paycom.net--and landlords as well as brokers are counting on the mix of expanding creative and entertainment firms to set the stage for a recovery early next year.
“I wouldn’t paint a gloom-and-doom picture,” Jones said. “You’ve got advertising firms. You’ve got architectural firms. The marina has tremendous potential.”
