CoStar Group: L.A. Office Rents Spike as Tech, Media Boom written by Jacquelyn Ryan

Jonathan Larsen, Principal and Managing Director at Avison Young is cited on the highest office rent growth in 4Q 2017

It’s not your imagination: The growth of the tech and media industry in L.A. is driving up rental rates.

Los Angeles saw the highest year-over-year rent growth in the office sector of any major city in the country last quarter, according to new CBRE Group Inc. data.

Los Angeles led the country with 11.1 percent growth to an average asking rate of $3.37 a square foot. The increase was largely driven by West Los Angeles, where average asking lease rates exceeded $5 per square foot. Neighboring Orange County came in second, with Nashville, Atlanta and Charlotte rounding out the top five metros for office rent growth.

"Amazon, Netflix, Apple and Snap, and more, have signed for hundreds of thousands of square feet of very expensive office space in the last two to three years," said Patrick Amos, first vice president at CBRE. "The rapid growth those companies and companies similar to them are experiencing seems to have shifted from the Bay to SoCal. What it essentially has done has significantly tightened the space availability for larger tenants, particularly those who are looking for higher-quality office space to recruit and retain their talent. That supply versus demand concept for quality office space has pushed rents from downtown to the ocean into areas that are above or at the historic peak."

Recently, Amazon leased 355,000 square feet at Hackman Capital Partners’ Culver Studios and Culver Steps in Culver City. Netflix leased 323,000 square feet in Hollywood at Hudson Pacific Properties Inc.’s Icon property. Snap took 300,000 square feet at Blackstone’s Santa Monica Business Park. The list goes on.

It’s not just the larger firms expanding either.

Jonathan Larsen, principal and managing director at Avison Young, said he’s receiving at least two phone calls a week from tech and media companies from other cities and countries looking to move or expand into L.A.

He recently helped close a deal for Sydney, Australia-based Big Review TV, a company that is "like Yelp on video." The firm leased 25,000 square feet in Culver City, an expansion from 5,000 square feet.

With this segment of the market so hot and well capitalized, landlords across Los Angeles are hustling to create office space that appeals to these types of companies by renovating or redeveloping space into the high-quality creative space that attracts them - and commands a higher rent.

The delivery of more than 1 million square feet of new construction and some high quality product returned to the market during the year helped drive the increase last year. It’s spilling out across submarkets as Westside markets become nearly fully occupied. For example, asking rates in the South Bay submarket, adjacent to the Westside, increased 12 percent year over year.

"Office space that 10 years ago would have been $2 per square foot is now $5 a square foot," said Larsen. "I’ve never seen anything like this."

Written by Jacquelyn Ryan
News Editor
CoStar Group