Silicon Beach Real Estate Market Remains Hot as Streaming Flourishes
From Bloomberg, by Nicole Piper:
“Everyone wants to work where Howard Hughes was”
The surge in online television viewing is spurring a wave of big real estate deals, as companies such as Netflix, Amazon.com Inc. and Google snap up space to cope with increased production demands. The amount of office space the entertainment industry occupies in Los Angeles County has climbed to the most this decade, with media tenants in 25.5 million square feet, up 2.99 million square feet from five years earlier, according to brokerage CBRE Group Inc. The space the streaming companies lease has evolved from the small offices of a few years ago to the giant production facilities typically associated with traditional Hollywood studios.
The surge in leasing by entertainment companies reaches from downtown L.A. and Hollywood to Playa Vista, once a stretch of marshland between Los Angeles International Airport and Venice that’s become known as “Silicon Beach” because of an influx of media companies and digital startups. Entertainment-industry growth has helped an office market hurt by a years-long exodus of traditional users of corporate space, including hotel operator Hilton Worldwide Holdings Inc. and defense contractor Northrop Grumman Corp., both of which moved to Virginia.
“What’s going on in L.A. now is very similar to what we saw many years ago, when the cable companies were growing rapidly,” said Jeff Pion, a vice chairman at Los Angeles-based CBRE. Rising demand for digital content, and the additional production that comes with it, mirrors the era when cable subscriptions climbed and new TV channels brought viewers more options, he said.
Hollywood isn’t alone in offering historic facilities to new-media companies. Playa Vista -- where companies including Alphabet Inc.’s Google, Facebook Inc. and Yahoo! Inc.now have space -- is on land that once was an airstrip for pilot and movie producer Howard Hughes, an allure not lost on its current tenants.
“Everyone wants to work where Howard Hughes was,” said Alison Girard, Brookfield Residential’s director of marketing for Playa Vista. “They want to come to a place with a story.”
Google was one of the first companies to migrate south from Silicon Valley in 2003, initially setting up shop in Santa Monica before moving to Venice Beach. In 2014, it acquired 12 acres (4.9 hectares) in Playa Vista, including the hangar where Hughes built his “Spruce Goose” airplane. Google’s YouTube unit also has about 41,000 square feet next door under a long-term lease. Last week, real estate developer Tishman Speyer announced that it leased more than 50,000 square feet of creative office space in Playa Vista to Loyola Marymount University for its School of Film and Television graduate programs.
“Our mom and dads’ office space is not the office space we want to work in today,” said Brookfield’s Girard, adding that the style once favored mostly by technology and media companies is catching on with traditional office tenants. “Now banks and lawyers want creative space too.”
Streaming service and content producer Fullscreen Inc. moved into its Playa Vista offices almost two years ago, and CEO George Strompolos said the open floor plan and modern amenities fostered the kind of creativity that drives the company’s business model. Proximity to YouTube and other similar companies was also a big draw.
“We kind of liked the idea of what was brewing with the Silicon Beach community,” Strompolos said. “We like our neighbors, most of which are collaborators, some of which are competitors. It keeps it interesting.”
Cheryl Idell, West Coast lead of marketing firm MindShare, which moved from Santa Monica to Playa Vista in June 2015, also said the open spaces allow for collaboration and a more relaxed environment. CBRE’s Pion predicted that older media companies such as CBS Corp. and 21st Century Fox Inc. will start to retool their offices to offer the type of amenities millennials have come to expect, and some companies have already taken steps in that direction.
The convergence of entertainment and tech has created new outlets for production while also leading to greater use of office space. Technological advancements have scaled down the number of people required to work on sound stages and boosted demand for offices as employees move behind computers. Still, not all buildings are benefiting. Traditional office properties are still coping with high vacancies, with younger workers expecting the catered food, open floor plans and ultra-casual dress codes that are rare in towers home to accounting and law firms.
“They’re all looking, and they’re all coming,” Hudson Pacific’s Coleman said. “We’re in a pretty strong wind tunnel and we’ve got it blowing behind us.”