February 07, 2019
In an unexpected twist at the end of 2018, demand skyrocketed for office space in West Los Angeles and Hollywood, where many entertainment and media firms are clustered.
Many large, established media companies such as DirecTV, Universal Music Group, and Warner Music Group leased office space earlier in the cycle. Most of the commercial real estate community agreed the market had already peaked and was settling into a post-peak slowdown. After all, 2016 marked the end of three straight years of annual office leasing activity over 20 million square feet.
Then in late 2018, Netflix leased two office projects under construction in Hollywood totaling nearly 700,000 square feet. Shortly after, Facebook leased over 260,000 square feet of office space in Playa Vista. And then the big one shortly after the New Year: Google leased all 584,000 square feet at the Westside Pavilion, which is being converted from a shopping mall into a creative office campus.
Large technology companies have zeroed in on Los Angeles for major expansions this late in the economic cycle for two key reasons. First, any tech company looking to expand its in-house entertainment division and digital streaming services needs a major local presence. This is to take advantage of Hollywood’s powerful network of talent agencies, management agencies, production houses, film studios, and law firms that specialize in the entertainment industry. Second, the region boasts a large and diverse workforce. This allows technology companies to recruit for skills outside the usual engineering jobs that they are typically associated with.
As a result, eight years into the economic expansion, Los Angeles is seeing massive office leases from the FAANG companies (Facebook, Apple, Amazon, Netflix, Google), as well as space requirements from other large tech firms such as Microsoft. All these companies are attracted to the region’s large, well-educated labor pool and corporate links to both the Pacific Rim and Latin America.
The entertainment/media industry is rapidly changing, which will provide opportunities for those companies that can best deliver what consumers demand. On the other hand, technology is disrupting the entire industry, and more consolidation is expected during the next decade. Real estate providers that understand how this industry is evolving and what the resulting needs are have the potential for hefty returns down the road.
– By Michael Soto, Research Director, Los Angeles, California