WESTERN SNAPSHOT, DECEMBER 2010
L.A. Office Market
The Los Angeles creative office market sector was certainly not immune to the timid economy, which continued during the third quarter. The limited number of creative companies experiencing growth through this period was limited and representative of the economy as a whole. However, the creative product type — the preferred space sought by the production, post-production, advertising/marketing and even technology sectors — was also surprisingly supply constrained.
Due in large part to the lack of new construction or large-scale conversion of old industrial buildings into creative office, tenants entering the marketplace with hopes of finding numerous attractive options and generous business terms in a more tenant-favored climate instead found limited product to meet their needs from a functional and/or aesthetic standpoint.
Although buoyed by a market that was experiencing meek demand, many businesses that view their office space as much in terms of the environment it creates for the attraction and retention of creative talent were prevented from realizing the true benefits of a tenant-favored market due to a lack of supply. Those that made moves during the end of 2009 and earlier this year absorbed much of the attractive, ready-for-occupancy space at more aggressive pricing from landlords looking to avoid prolonged vacancies. Many would agree that the traditional market indicator of vacancy rate, which is 12.3 percent across all of Los Angeles and 12.7 percent in west Los Angeles (which houses the largest concentration of creative companies), is a misleading one for the area’s creative industries.
However, current market conditions may shift in the coming year. The Marina Del Rey submarket and the Playa Vista area with a 26 percent vacancy rate was on the rise before the financial collapse of 2008, as companies such as Fox Interactive, Belkin and Rubin Postaer planned relocations to the area. Two years later, with only Belkin and USC Creative Technologies having moved into the area, the submarket has wallowed in uncertainty. This has been due in large part to:
1) The 500,000-square-foot Fox Interactive space, which has sat in limbo as it was marketed for sublet.
2) Lincoln Properties has an additional 500,000 square feet of vacant space with very little leasing actively lately.
3) The former United States Post Office site sits untouched and lender-owned. Before the economic downturn, the space was intended to be a creative campus consisting of 400,000 square feet of office space and anchored by Rubin Postaer.
4) The 537,000 square feet of former Hughes Aviation buildings (including the famous Hercules hanger) in the Playa Vista campus was the recent subject of a lender-facilitated sale as part of Tishman’s giving their undeveloped portion of Playa Vista back to the bank. However, the sale of the former Hughes Aviation buildings to local developer The Ratkovitch Company for $32.4 million is the first sign of the end of the uncertainty and of a new significant supply of creative office space being delivered to the market. As the economy picks up speed, the uncertainty in the area diminishes and the remainder of the Playa Vista market evolves, including the repositioning and renovation of Embarcadero Capital’s approximately 200,000 square feet at the Jefferson Playa Campus, there should be sufficient supply during 2011 and into 2012 to meet demand throughout this sector of the office market.
Keith H. Fielding and Doug Marshall are agents at The Klabin Company/CORFAC International.
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