The Burbank industrial market—like many submarkets of Los Angeles—is red hot with a sub 1% vacancy rate and rising demand. The market driver in Burbank, however, isn’t your standard ecommerce company or third-party logistics user, which are the industries driving much of the demand throughout Los Angeles. No, it is entertainment users driving activity in this market, and these creative companies, which house film equipment and service the surrounding studios, want creative spaces.
BKM Capital Partners is responding to the call. The value-add industrial investor has acquired Backlot Burbank, a 12-building, 302,869 square-foot industrial business park, for $84.8 million. The property currently has a mix of entertainment warehouse users and aerospace manufacturing users, but BKM has witnessed the increasing demand for entertainment-friendly spaces. It plans to transition the business park into an entertainment hub with creative industrial upgrades. “This product is driven to the creative and entertainment tenants. The studios need warehouses that can run equipment back-and-forth all day and store it overnight. It is the lighting guys, the camera guys and the costume guys,” Brett Turner, director of acquisitions at BKM Capital Partners, tells GlobeSt.com.
Demand for creative and entertainment-related industrial space has dramatically increased in Burbank as tenants have migrated out of markets like Hollywood and Downtown Los Angeles. “The vacancy rate in Burbank right now is sub 1%, and that is because tenants are coming from markets like Hollywood and Downtown L.A.,” explains Turner. “Tenants are being pushed out and industrial space is being torn down and converted into multifamily. The land in those markets is much more valuable as apartment buildings. So, our product type has seen a shrinking of supply at the same time that these tenants are growing.”
Serving the increasing demand from entertainment users will only help to drive value at the property. “We find a lot of value in expanding upon the entertainment tenants and allowing them to fully absorb our business park. The great thing about Burbank is that the entertainment tenants are really a captive audience. The studios are already there and L.A. is congested, making it difficult to move back and forth,” Turner says. The property is currently getting well below market rents. Two years ago, tenants were leasing space in the park for $0.80 per square foot, but earlier this year, lease rates bumped up to $2.10. Turner says that the creative industrial improvements will secure premium rental rates. “There is a big jump—more than double the rent—that we can achieve just by doing these tenant improvements,” he adds.
The value, however, isn’t only in increasing the rental rates but in the leasing velocity as well. The average engineer in these facilities makes $130,000 per year and is well educated, according to Turner. They want to work in a creative, clean space. “To attract that person to the space, we have to make it cool and creative, and we have to create a vibe where all tenants in the park are related to the entertainment sector,” he adds. “You can really create a synergy within the park where all of the tenants can benefit together. You are seeing a preference to more creative spaces across L.A. We are playing into that. This is true creative industrial space.”