Office Is the Last Piece of the DTLA Puzzle

The first quarter report from the DCBID, which was recently released, showed strong activity in the retail sector—an asset class that has been slow to join the Downtown resurgence. It is one of the final pieces of the puzzle, but Carol Schatz, the president of the DCBID, says that office is the final asset class that will complete the story. With Warner Music's recent lease in the Arts District and growing interest from other companies, she is confident that office will soon follow retail.

“Office is one of the final pieces of the puzzle. It is coming back and we are seeing increased interest in office as well,” Schatz tells GlobeSt.com. “Office and retail will allow us to tie the bow on this extraordinary growth that we have been experiencing. All of the indicators show that every market is on fire downtown. It isn't just residential, but hotels, retail and office as well. The office statistics get better and better, and as people realize what a cool area this is and as we look more like a downtown of a major city, people will come here. We became a 24-seven downtown five years ago.”

Warner Music's deal will be a huge driver of this activity. In 2015, the DCBID launched a program to attract more creative office users to the market. Hollywood and the Westside have both prospered as successful office markets because of the creative tenants. Downtown has hoped to follow, and now with its first major tenant, Schatz says that more will follow. “When we first heard the news of the Warner Music lease, we knew that it would catalytic,” she adds. “The importance of the company and the message to the rest of the creative and tech would show that downtown was in fact the kind of place that is worth looking at. We think that it is the tipping point for commercial in the Arts District. We had already seen a vibrant mix of smaller creative companies, but this will create a critical mass that will be a game changer.”

It is already starting to happen. In the first quarter, office vacancy was down 4.1% with office rents up 5.6% year-over-year, and there was more than 535,000 square feet in leasing activity. Schatz says that interest has increased from more creative users, and Warner Music doesn't actually move into the space until later this year. “We were told by various brokers that we work closely with that there has already been a significant increase in activity from various industries, both from small companies and servicers that want to be near Warner Music,” she explains. “We are excited to see how this plays out later this year when they move in.”