Media and Tech Lead LA’s Office Market: Report
Quarterly leasing totaled 4 million square feet, trending with the five-year average.
The market for top-end office space in Los Angeles tightened up this past quarter as tech and media firms continue to eat up space.
Savills’ third-quarter 2019 report showed overall availability in Greater Los Angeles is holding at 18.6 percent, which was flat over the quarter, while Class A space tightened, both since the previous quarter and year over year, to 17.5 percent.
After the second quarter finished with 5.3 million square feet in lease deals, the third quarter followed with 4 million square feet of leasing activity, which is consistent with the five-year average. Demand slowed somewhat, but the media, tech and coworking sectors drove the market again with a combined 690,000 square feet, or 38 percent of the overall lease agreements.
WeWork (WE) grew by more than 275,000 square feet prior to the collapse of its IPO. Meanwhile, Disney made its push into the online content streaming sector to compete with Netflix (NFLX) and Amazon (AMZN), and leased 115,674 square feet in Burbank, a submarket where it already has a large presence. Warner Brothers also leased 108,167 square feet nearby on Olive Avenue. Both Burbank deals and WeWork made the top five leases in the county in the third quarter.
The demand for low- to mid-rise creative office campus layouts also remains steady among technology and media tenants, according to Savills. Classic industries such as legal services and finance also opted for traditional Class A high-rises.
Options for big deals on the Westside and in Burbank are at an all-time low. Andy Lustgarten, senior managing director at Savills, told the Commercial Observer that tenants looking for 100,000 square feet or more are definitely limited in Los Angeles, but especially on the Westside.
“All of the content creators and the coworking firms have been leasing all the big blocks,” he said. “There’s a shortage of 100,000-square-foot blocks, although there are some more coming in the pipeline.”
The Westside still saw major leases when Kite Pharma leased 87,795 square feet on Olympic Boulevard in Santa Monica, and WeWork leased 67,583 square feet at 10585 Santa Monica Boulevard in Westwood. The demand was also on display when Kilroy Realty Group purchased the Blackwelder campus in Culver City for $185 million two weeks ago, according to Lustgarten.
With the highest asking rental rates in the region and steadily declining availability, Culver City, Century City, Santa Monica and Beverly Hills remain the premier submarkets in Greater Los Angeles, according to the report.
The South Bay submarket still offers many full-floor options, even after two major leases at Tishman Speyer’s campus at 555 South Aviation Boulevard, combined for 167,795 square feet in El Segundo. TechStyle Fashion Group signed for almost 87,800 square feet, while the advertising firm Saatchi & Saatchi picked up the rest.
Although availability remains flat and leasing activity has quieted down in Downtown L.A., the largest overall office lease in the quarter was a renewal. Brookfield Properties resigned Gibson, Dunn & Crutcher LLP to a long-term deal for 215,000 square feet for its headquarters at 333 South Grand Avenue. The other nine of the top ten leases were new locations for tenants.
The Miracle Mile submarket saw the largest decrease in availability, dropping to 14.1 percent from 21.1 percent in the previous quarter. It was propelled by WeWork, which picked up 158,000 square feet at Onni Group’s Wilshire Courtyard.
Moving forward, Savills reported that large tenants will find fewer options, particularly in new product, as pre-leasing remains strong. Indeed, construction activity throughout the region also remains active with 4 million square feet underway, 52 percent of which is already pre-leased.
Rockwood Capital’s office campus project in Playa Vista, called Water’s Edge, is a good example of what’s entering the market. It’s currently nearing the end of construction on the final 190,000-square-foot building which is set to open in the middle of 2020, Lustgarten said.
“I’d expect status quo in the market through the end of the year,” Lustgarten said. “A lot of large transactions have signed in the last 12 months, and it’s gotten a little bit quieter in the market as far as large deals go. But there’s a small number of content creators that continue to drive the market.”