Netflix, WeWork and others bolster L.A.’s office market
The office rental market in Los Angeles County held steady in the third quarter as technology, entertainment and co-working companies kept up their long-running demand for new space.
The Westside, where parts of Santa Monica and Playa Vista are known as Silicon Beach, remained the high-end draw.
For the 10th straight quarter, according to real estate brokerage CBRE, Westside landlords increased how much space they were able to lease — known in real estate lingo as positive absorption. In addition, overall vacancy there was the lowest since the end of 2016, CBRE found.
Among the largest Westside leases were Kite Pharma’s agreement to take 87,000 square feet in Santa Monica and WeWork’s deal to occupy 67,000 feet in West Los Angeles. Average asking rents on the Westside were $5.14 per square foot per month, well over the county average of $3.71 a foot.
The county average rent was unchanged from a year ago and vacancy also held steady at 14.3%, the same as it was in last year’s third quarter.
“It’s been relatively flat in the overall market,” said Lew Horne, president of the Pacific Southwest division for CBRE, an international real estate services company based in Los Angeles.
Downtown Los Angeles continued its long reign as the softest major market in the county with nearly 19% vacancy, but Burbank has gotten a boost from the spillover of media companies that have been filling up Hollywood at a rapid clip in recent years; vacancy in Burbank fell to 11%, according to CBRE.
Hot Hollywood has seen a raft of “pre-leasing” of planned or unfinished buildings in recent quarters, with market dominator Netflix interested in any offering of 20,000 feet or more. The entertainment streaming giant has leased or committed to occupy about 1.6 million square feet in Los Angeles. Nearly 80% of the office space being built in Hollywood is already leased.
Burbank’s sister “Tri-Cities” markets of Pasadena and Glendale also had a good quarter, Horne said.
“Two years ago we were concerned about the Nestle departure,” Horne said, when Nestle USA moved its headquarters from Glendale to Virginia, affecting 1,200 employees. Last quarter, the Tri-Cities had a net gain of nearly 113,000 square feet of occupied space.
Co-working, where companies such as WeWork and Convene rent blocks of space and then sublet to small tenants, has emerged as a strong player in Los Angeles and other markets.
Co-working operators give people who were working out of their homes or other spaces like coffee shops a place to set up shop. Larger companies that are growing or testing new markets are also turning to co-working offices for short-term occupancy.
Horne declined to comment on the status of WeWork, which recently filed to withdraw its initial public stock offering, but said the co-working model it helped popularize is here to stay.
“Co-working has changed the market,” he said, “and we don’t see that going away.”