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ETC... ETC... NEWS
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West LA Office Market Riding Wave of Tech Demand

9/29/15

This report on the impact of tech industry-related firms on the office market in Los Angeles was provided to us by CBRE Group Inc.

Although not yet the dominant industry sector in commercial real estate, technology companies have grown a sizeable footprint in Los Angeles. West Los Angeles, in particular, boasts a game-changing cluster of tech tenants as larger tech companies base their Southern California operations in the submarket and invite a unique ecosystem. With this surge in activity over the past few years, West Los Angeles has become a true tech corridor: a group of coastal submarkets dubbed, “Silicon Beach.” In fact, of the 684 tech firms in Los Angeles, 592 (86.5 percent) are located in West Los Angeles, according to a report by CBRE Group, Inc.

Tech tenants occupy 9.3 million sq. ft. of office space in Greater Los Angeles, which represents 4.2 percent of the office market. The story shifts substantially in West Los Angeles, with tech tenants occupying approximately 12.0 percent of the office space.

Santa Monica is the largest and most diverse of the Silicon Beach submarkets. Originally the epicenter of tech growth in the area, Santa Monica now has a total of 2.3 million sq. ft. of office space occupied by 158 different tech tenants. This large real estate footprint accounts for 24.9 percent of all the square footage occupied by tech tenants in West Los Angeles. The Santa Monica submarket has three tech clusters; each of which has a distinct industry composition. The largest tech cluster, located in west Santa Monica between the I-10 freeway and Wilshire Blvd., is most heavily concentrated in business services companies (29.3 percent). Just east along the same corridor is another tech cluster where digital media companies account for the largest share of tenants (24.0%), and a third tech cluster in the southeast corner of Santa Monica is predominately software companies (35.3%). The submarket is almost certain to remain a hotbed of activity, with a large number of leases expiring over the next 15 months.

While Santa Monica and Venice often take all the headlines for tech activity in West Los Angeles, many large tech companies have been swiftly increasing their presence in Playa Vista. Tech companies occupied 80.4 percent of the office space in Playa Vista as of Q2 2015 – the most among West Los Angeles neighborhoods.

“As competition for space in the hottest projects and areas began to intensify, asking lease rates surged and large blocks of space became increasingly rare. Playa Vista became the logical next step for large occupiers. It’s just a few miles from Santa Monica, situated on the coast and still laden with opportunity,” said Blake Mirkin, executive vice president, CBRE. “The newly-developed community has become an ideal destination for tech companies looking to expand their Southern California footprint.”

A unique feature of the West Los Angeles market is that technology tenants do not have a very large commercial real estate footprint yet, but are expanding quickly both within and across submarkets. West Los Angeles as a tech hotbed is a relatively recent phenomenon, with a majority of the startup-company growth occurring over the past few years. Over the past three years, leasing activity among tech tenants has played a larger role in overall market activity. This is especially true in West Los Angeles, where year-to-date, tech tenants now account for 30.9 percent of all positive leasing activity in the market. In 2012, tech tenants accounted for 22.8 percent of positive leasing activity; in 2013, that figure jumped to 32.5 percent.

The make-up of the tech market in Los Angeles is notably different than that of the more established tech market in San Francisco. Software tenants in San Francisco account for 28.3 percent of the market’s tech footprint, compared to 7.7 percent in Los Angeles. Today, most of the tech tenants occupying office space in Los Angeles belong to the digital media and business services industries. Software companies in Los Angeles have received a great deal of venture capital funding over the past several quarters.

An important characteristic of the tech ecosystem in Los Angeles is the younger age of the average tenant, compared to established tech markets like San Francisco and Silicon Valley. According to data from the investor matchmaking site, AngelList, Los Angeles accounts for 4.2 percent of startups nationally. Additionally, 8.4 percent of all Los Angeles startups are early-stage companies, compared to 7.0 percent for San Francisco and 7.7 percent for the broader Silicon Valley area.

The full Techbook Los Angeles 2015 report can be accessed HERE.


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