New Media Companies Absorb Large Blocks of Office
Large blocks of contiguous office space are disappearing from the L.A. market, thanks to a spike in demand from new media companies.
New media companies have become the reigning king of the office market in Los Angeles. According to research from JLL, new media companies drove strong office leasing activity in the fourth quarter and have helped to absorb large blocks of space. New media companies helped to bring total office absorption for the year to 776,026 square feet, including Google’s 310,000 square foot occupancy at the Hangar in Playa Vista in the fourth quarter.
“Large blocks of contiguous space are disappearing at an amazing rate. As of year end 2017, from Hollywood to Playa Vista, there were 10 blocks of 100,000 rentable square feet of contiguous space that were ready to start tenant improvements, and by year end 2018, those blocks had dwindled to seven,” Josh Wrobel, managing director at JLL, tells GlobeSt.com. “In the initial months of 2019, at least two of those blocks are in leases to come off of the market. In addition, there has been over 2 million square feet of pre-leasing of new developments and redevelopments in what has historically been a market that has not had significant pre-leasing.”
New media has become a major driver of office activity in the Los Angeles market over the last decade, and the growth of the industry has also helped to fuel the growth of adjacent industries as well. This has had a significant impact on office leasing in Los Angeles. “The major new media players have accounted for the bulk of nearly 10 million square feet of absorption in L.A. over the past decade with the new media tenants effectively planting their flags in some of Los Angeles’ hottest submarkets,” says Wrobel. “The ancillary impact of the growth of new media in Los Angeles is that other more traditional submarkets, such as Century City, have experienced tremendous occupancy growth due to the fact that the professional service firms, like talent agencies, entertainment law firms, etc., that serve the entertainment industry have significantly expanded their employee base and occupancy levels as they ramp up to provide legal and representation services to the growing content industry, which includes new forms of content.”
It isn’t surprising that new media has become one of the largest office users in the city, especially considering the growth of content consumption. Los Angeles, already shaped by entertainment, was well positioned to take advantage of new content needs. “I firmly believe that we are in the second golden age of Hollywood relative to the content industry,” says Wrobel. “Today, streaming allows this next generation of content providers to simplify distribution so the new studios can focus on content creation without all of the trappings and costs of traditional bricks and mortar investment. As such, new media is attracted to the core elements that Southern California has to offer.”
With strong demand and rising rental rates—the same JLL report up to 42.84 per square foot with concessions falling—new construction activity is increasing. “As it relates to redevelopment and new development, at any time there is single digit vacancies and peak rates, to paraphrase Jurassic Park, ‘Development finds a way,’” says Wrobel. “Since content is still the key economic driver, despite the high cost of developable land, the submarkets around the flag planting, hub new media tenants will continue to thrive for new development.” Those markets include the Arts District in Downtown Los Angeles, Century City, Playa Vista, Culver City, Hollywood, and areas adjacent to West L.A. and Santa Monica.
New media has become so ingrained in the Los Angeles office market, it is hard to separate it, in the same way that it would be difficult to separate Los Angeles from the entertainment industry. “The media entertainment/content and technology related companies are the key drivers for both the specific market growth as well as the ancillary industries that serve those industries,” says Wrobel. “As such, with Los Angeles and entertainment being so intertwined, the general office market has followed the new media tenancy growth pushing the Los Angeles market to new heights across the basin.”