Los Angeles ranks at the top of the list for start-ups. In fact, according to a recent study from CBRE, Los Angeles ranks third in start-up business activity in 2016. This activity is changing the L.A. office market, driving activity in new office niches and submarkets of Los Angeles. To find out more about the start-up activity in Los Angeles and how it is affecting the office market, we sat down with Petra Durnin, the head of research and analysis for Southern California at CBRE, and David Freitag, an associate focused on the West LA office market at CBRE.

GlobeSt.com: How does Los Angeles's start-up ranking compare to years past? Give me some perspective on this news.

Durnin: LA ranked fourth in 2014 and 2015 and held steady at third in 2016 and 2017, ahead of the Bay Area, according to the The Kauffman Index. This news may come as some surprise in light of all the focus on San Jose and the surrounding area since the end of the recession, but LA's tech and tech-related leasing activity has totaled 17.1 million square feet since 2012 and continues to grow alongside venture capital investments in the area, according to our research.

GlobeSt.com: Why is start-up activity important, and what does it tell us about the broader market?

Freitag: Small businesses and start-ups are commonly viewed as the employment engine of the economy. Start-ups inherently breed competition both within their segment and within the overall start-up ecosystem. That results in more rapid innovation. From a broader perspective, this also serves to further buoy the talent pool as more want to join in the “disruption.”

GlobeSt.com: Why are start-ups attracted to L.A.?

Freitag: LA has always been an entertainment / content hub, which is a huge differentiator because this synergy is unique to LA. Many of the groups we are working with are tapping into this by incorporating elements into their space that help facilitate in-house content like podcasting rooms, sound stages or even virtual reality studios. Even something as simple as weather can be a huge draw. The most sought-after office spaces are those that incorporate a wealth of natural light, walkability, green spaces and an indoor/outdoor element.

Durnin: L.A. is also more affordable than San Francisco or New York, both from the real estate standpoint and the cost of talent. LA's strong university system helps grow the labor pool, too. Five of the 100 greatest universities in the United States are located in Greater LA. The combined talent pool for tech and motion picture employment is approximately 308,000 employees. The additional support jobs that service the two industries total an additional 703,500 for a combined talent pool of more than one million workers.

GlobeSt.com: How does start-up activity in L.A. compare to other Southern California markets?

Durnin: While Southern California markets rose in the rankings, Northern California markets dropped. San Diego and the Inland Empire climbed seven and five spots, respectively, while San Francisco and San Jose dropped ten and seven spots, respectively. This change reflects the rise in popularity of the LA metro as a viable tech market.

GlobeSt.com: How has this activity impacted the office market?

Freitag: There has been a complete flip in preferences when it comes to office space for tech companies. In many cases, redeveloped Class B or C low-rise office product commands higher rents than even the most high-profile class-A high-rise office product. Start-ups are driving this growth; the most expensive deal recently signed in DTLA occurred in a new creative office development in the Arts District rather than a class-A high-rise.

Durnin: In the long run, as these businesses evolve and grow, more office space is needed. LA is uniquely positioned to accommodate these companies due to an abundance of choices from vintage buildings and traditional office towers to new campus construction and unique buildings in emerging submarkets with distinctive live/work/play atmospheres. In addition to burning through current availabilities, it also drives redevelopment of underutilized product.

GlobeSt.com: How does Los Angeles's start-up ranking compare to years past? Give me some perspective on this news.

GlobeSt.com: Why is start-up activity important, and what does it tell us about the broader market?

GlobeSt.com: Why are start-ups attracted to L.A.?

GlobeSt.com: How does start-up activity in L.A. compare to other Southern California markets?

GlobeSt.com: How has this activity impacted the office market?

Instant Insights /

Start Ups Are Changing the L.A. Office Market

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