Creative Office Rents Climb High

PLAYA VISTA, CA—The Phelps Group, a leading advertising firm, has signed a 30,000-square-foot long-term lease at Horizon at Playa Vista, GlobeSt.com reports exclusively. The lease is valued at a $16 million for just over 10 years—the exact lease term was not disclosed—illustrating the steep rise in rental rates over the past six months. According to Patrick Ayau, a principal at Lee & Associates West L.A. who represented the tenant in the transaction along with Lee principal Andrew Wilson, lease rates six months ago would have been as much as 50% cheaper.

“Rental rates in this market have increased dramatically. It is anywhere from $3.50 triple net to $4.50,” Ayau tells GlobeSt.com. “In a short period of time, the rents have jumped up by 50%. You can't duplicate the lease now in terms of price per square foot. Since last summer there has been a quantum leap forward because there has been a approximately 200,000 square feet of absorption.”

The Phelps Group is relocating to the property, which is located at 12121 Bluff Creek in Playa Vista, from its previous location in Santa Monica. Although Playa Vista rents have seen a steep incline, they are still a discount—about $1.00 per square foot cheaper—compared to rents in Santa Monica. As a result, many big-name tech companies, including Google, Yahoo and YouTube, which has a facility right across the street from the Phelps Group's new office, are moving into the neighborhood.

The firm targeted Playa Vista from the beginning because there are so many other advertising and marketing firms moving to the area. “This is a way to save money and expand your footprint,” explains Ayau. This particular building was originally marketed as a classical institutional mid-rise, so the tenant is going to perform a build out. “They are in plans for construction now. The building was originally built corporately, so they are modifying some of the building to add in more of the creative features. The new space will have open workspace to create a collaborative environment. For example, we are adding a balcony to have indoor-outdoor space.”

The tenant was also attracted to the ample—and still affordable—living options for its employees. Between the recently opened Runway apartments and other rental properties and the for-sale homes available, it was a good fit.

Mike Geller of First Property and Patrick Foudy and David Saeta of IDS represented the landlord, Horizon PH1 Office Holdings, an entity of JP Morgan Asset Management. The Phelps Group will move into the property in early 2016.