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August 13, 2018

The Revitalization of LA: the New Home of Tech, Media, and Creative Office

In February of this year Peter Thiel—PayPal billionaire, venture capitalist, and a fixture of the tech industry—announced that he was leaving Silicon Valley and moving to Los Angeles. He plans to relocate his residence to Hollywood and move his hedge fund and foundation, Thiel Capital and Thiel Foundation, to a new headquarters in LA. In many ways Thiel is the very epitome of Silicon Valley success, and his departure and relocation to Los Angeles is similarly emblematic of a wider phenomenon happening in the LA metro. Los Angeles is now the new home of tech, media, design, and other “creative” companies.

Perhaps a surprise to some, but billions of dollars of venture capital funding is flowing into Los Angeles based startups. In 2016, venture capitalists invested an estimated $4.2 billion to back 213 LA area tech firms. That was a 38 percent hike from the amount raised in 2015. Yet, compared to what was raised last year, even this staggering sum seems trifling. According to Built in LA, a firm which tracks LA’s entrepreneurial activity and tech ecosystem, $7 billion of VC funding was invested into 350 LA firms in 2017.

The investment from these firms is fueling the revitalization of LA and its effects are palpable everywhere, particularly in the Los Angeles Office real estate market. How new office buildings and workspaces are built and designed, and how employees work within them has been unmistakably transformed. These “creative” tenants often demand “creative new office spaces” to house their workers. Though ill-defined, such spaces generally involve open layouts, high ceilings, unconventional amenities, and a work environment that cannot be easily duplicated in existing high-rise and mid-rise buildings. The emphasis is on the user environment and amenities related to employee retention and recruitment. The demand for creative work spaces is also fueling the rise of coworking operators such as WeWork, Spaces, and Cross Campus. Such firms now occupy about 4 million square feet through greater LA. In fact, LA is the second largest coworking metro in the country—second only to New York.

Along with the Hollywood/Wilshire Corridor and the Arts District in Downtown LA, the primary beneficiary of all this investment has been West LA. Dubbed Silicon Beach, Santa Monica, Venice, and Playa Vista are the homes of firms such as Snapchat, Google, and Buzzfeed. Of the 2.7 million sq. ft. of office space under construction in Los Angeles, approximately 78% of the new development is in West LA and the Hollywood/Wilshire Corridor. Recently completed projects include Santa Monica Gateway at 2834 Colorado Ave, and 7007 Romaine Street in Hollywood (fully leased). Although ground-up speculative development is on the rise, the main sources of new office supply are industrial-to-office conversions. In Downtown, for example, Waterbridge Capital is transforming the Broadway Trade Center into more than 600,000 SF of office space.

While interest and demand for space in Silicon Beach has not waned—for example, in addition to Cornerstone OnDemand renewing its space, Tennis Channel recently signed a new lease in Santa Monica—many firms are moving into the markets of the South Bay such as El Segundo, Manhattan Beach, Redondo Beach, and Hermosa Beach. Companies are exploring and expanding into the aforementioned neighboring markets because of the increasingly high asking rents, now hovering around $6 PSF/MO/FSG, West LA commands. Given their proximity to the tech and media giants of Silicon Beach, the abundance of aging industrial product ripe for creative office conversion, and with rents that are on average $15-20 cheaper (on an annualized basis), the South Bay offers an extremely attractive locale to invest and settle. As tech and other creative firms continue to make inroads deeper into newer submarkets, expect the revitalization of LA to continue apace.

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