Tech Is in the DNA of LA

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In the first wave of the current technology boom, which began while we were still feeling the sting from the Great Recession, new technology companies emerged much the same as they did during the previous boom in 2000. Businesses popped up overnight with big plans and leased lots of space. Unlike the last time, though, the current boom wasn’t positioned on a quicksand base of mostly internet-related activity. It didn’t bust a year later largely due to the amount of capital now being poured into these fast-growing companies and as technology has infiltrated most aspects of our lives. The influx of money has spurred a solid foundation of tech growth today that has spread from consumer-facing products to a presence in every industry sector over the last 10 years.

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Technological advances historically pull us out of recessions. Around 2009, when new tech companies began bubbling up and planting flags on Los Angeles’ Westside, they favored the beach and proximity to other tech firms. Their footprints ranged from the smallest startup to huge gaming companies. Burbank was already an established entertainment capital but other areas of L.A. hadn’t yet cultivated the right atmosphere for these new players. By 2013, when L.A. truly moved into growth mode across all market fundamentals, tech and tech-related companies had leased 2.3 million square feet on the Westside in just four years. Over the next five years, they leased another 4.2 million square feet across all of L.A.

Defining what companies fell into the tech sector became challenging with new businesses constantly arising, offering a vast array of cutting-edge services, apps, games and products. The tech industry morphed, evolved, grew rapidly and began to seep into other industry segments. Though some form of tech already existed throughout most sectors, it began to take on a life of its own and moved to the center stage of business. It also converged with entertainment in a way that doesn’t exist in any other market, which opened up new media avenues and spawned media giants that changed the way we consume entertainment.

Tech spread quickly through retail and e-commerce, media, entertainment, medical and even commercial real estate. Fintech, healthtech, insurtech, regulatory technology, wealthtech and autotech emerged at a dizzying pace alongside existing biotech, media and entertainment. Another layer of players in the sharing economy sector and content creation soon meant that every industry could be categorized under the tech umbrella. The archaic industry coding classifications couldn’t properly identify rapidly fragmenting tech segments, forcing these groundbreaking companies to identify with industry classifications that didn’t come close to defining them. Case in point: generic categories ranging from communications and business services to videotape rental and retail still define some of the most influential household names in tech in L.A. Sorting through all the industry categories made identification of tech companies even more challenging. Once fresh logic was applied to how we look at tenants, the realization surfaced that the tech sector’s reach and influence touch every corner of the corporate world and make up the bedrock of commercial real estate in L.A.

Though these companies create products that exist in a digital world, they have real-world needs for office space, studios and post-production facilities plus the creative and engineering talent to deliver content to a worldwide audience that’s connected 24/7/365. The rise of the live-work-play paradigm and the creative space movement helped attract companies in the tech sector into new areas in L.A. that were previously under the commercial real estate radar. The average size of these tech companies in the region is 13,000 square feet, which allows them to access areas that were previously unable to accommodate most tenants because of their larger size. The specific requirements they have in order to grow and evolve include access to transit, proximity to well-stocked labor pools, supply of millennials and a rich mix of amenities. L.A. has the third-most comprehensive transit system in the U.S., houses 113 universities and 950,000 undergraduate students, and launched approximately 3,200 new restaurants and retail in 2018. This combination attracted $4.8 billion in venture capital funding, cultivated 1,986 start-ups, and resulted in 2.1 million square feet of space leased by tech companies over the past four quarters.

Emergent technologies such as augmented reality/virtual reality (AR/VR) and artificial intelligence will drive the next stages of the industry, and L.A. is evolving to accommodate it. Across the U.S., tech submarkets average 13 percent higher rent than those with a predominantly traditional tenant base. L.A. is quickly becoming the darling of the tech world and drawing tenants from all over the world, having attracted 1.5 million square feet of tech tenants over the last year from the Bay Area, Seattle and as far as Asia. In short, tech has evolved dramatically and today touches on almost every aspect of our professional and personal lives, and that isn’t truer than right here in the Greater Los Angeles and Southern California region.

Petra Durnin is the director of research and analysis for CBRE Southern California and Hawaii.