Venture Investment Bodes Well for Office Market

LOS ANGELES—The Los Angeles market is seeing an abundance of venture capital flood into the market, thanks in large part to the start-up boom in Silicon Beach. As a result, the office market is getting a welcome and much need boost, according to Michael Rudis, the senior research analyst at NGKF, in this exclusive story. As a result of this capital, Rudis expects to see job growth and business expansion through 2016 as well as increased office demand and rental rates.

"I think over the next couple of years, we have a really good path to follow. There is a lot of job growth and there is a lot of venture investment coming into Los Angeles and Orange County area," Rudis tells GlobeSt.com. "Through the third quarter 2015, we had the most venture capital investment of any year since the year 2000. That gives companies that fuel to grow and increase their need for office space. As a result, I do think that office rental rates are going to continue to go up for a while."

The technology industry is a huge driver of for venture capital, and the majority of the technology in the Los Angeles area is rooted in the South Bay and Westside markets. "Los Angeles is pulling a little bit from Silicon Valley in terms of prominence for technology," says Rudis. But, there has also been a changing dynamic in those markets as creative companies spread out from Santa Monica into the nearby Playa Vista, El Segundo and Culver City markets. According to the latest NGKF office report, Santa Monica actually saw negative absorption in the final quarter of 2015. Still, Santa Monica isn't going to see rental decreases or even rent stabilization any time soon, according to Rudis. "There is not a lack of demand for Santa Monica, so I would be surprised to see a rental rate decrease there," he says.

Technology, however, isn't the biggest office using industry in Los Angeles. The financial and business services sectors are a larger piece of the pie; however, Rudis was quick to explain that technology is that fastest growing sector. "I think that you see the most growth in the technology industry," he says. "Some of the other industries that are experiencing a lot of growth aren't big office users. When we look at industries to gauge office demand, we focus on professional business services, information and financial activity."

Overall, Rudis believes that there is still plenty of room left in this cycle for office growth, and he says the strength in the last quarter is evidence of a good year ahead.