Hollywood Office Development Set for a Boom

New media companies are driving the development boom in Hollywood. In the last two years, new office product—particularly Columbia Square and ICON—has seen phenomenal success with leasing activity and strong rental rates. In fact, the Sunset-Vine office micromarket within the Hollywood submarket has a 2% vacancy rate while vacancy in the Hollywood submarket is in the single digits as well. That says volumes, considering L.A.’s office vacancy rate is approximately 14%. The success has prompted more spec office development, which is likely to peak in 2020, according to new research from JLL.

“The media and tech companies are growing in Hollywood because they want to be near the talent. Hollywood is the true center of L.A. and it has access to a lot of talent and millennial workforce,” Nicole Mihalka, managing director at JLL, tells GlobeSt.com. “A lot of that talent lives on the eastside, and Hollywood is very accessible to that area. If you have a content driven media company, you also want to be near celebrity talent as well. There are studios and sound stages in Hollywood, and it is close to influencers and actors.”

Active developers include CIM, Hudson Pacific, Kilroy Realty Corporation and J.H. Snyder. 1.6 million square feet of office product has been added to the market since 2014, when the development boom started. This year, nearly 300,000 square feet of new office space will deliver, and in 2020, that number will spike to 900,000 square feet. “Kilroy has also strategically acquired larger sites to build campuses. Based on the success of other projects, specifically Columbia Square and ICON, created the next speculative office campuses,” says Mihalka. In 2019, development deliveries will take a pause, likely because of the limited land for development and competition from other asset classes. “Land is scarce in Hollywood. A lot of land has sold to multifamily developers and hotel developers,” adds Mihalka.

Whether development has driven migration of tech and media companies or if tech and media companies drove the development boom, there is now an ecosystem in Hollywood for these industries. “In the last 10 years, Hollywood has also gotten more amenities and better office product,” says Mihalka. “There is new fresh office product and lifestyle office space, and that has helped attract companies. Everything is there, and 15 years ago, it wasn’t.”

Leasing activity and rising rental rates are not only fueling new construction, but also investment activity. “Investors have been eyeing Hollywood for the last five years. In the past five years, rental rates and sales prices have gone up,” says Mihalka. “This year, the new product is going to be $6-plus full-service gross.”