Technology Industry’s Impact on the West LA Real Estate Market

The demand for creative office space in West LA is becoming more common across an array of industries, and particularly sought after by technology companies and their supporting services. The main impetus behind the rapid growth is the ability to merge technology with Los Angeles’ entertainment industry. With the major increase in tech campuses popping up, so does the need for available housing, restaurant, retail and office space. This trend has resulted in a significant shift in the West LA real estate market and is not likely to slow down anytime soon. Tech companies are ideal tenants for the city and for commercial real estate brokers alike, and their typically well-paid, highly educated employees need adequate housing and services. The West LA real estate market reflects this growth to match the influx of employees and their housing needs.

The area stretching between Santa Monica and El Segundo is fast becoming the Southern California hub of the Bay Area’s Silicon Valley and fittingly taking the title of “Silicon Beach.” The real estate market is similar to what occurred in Silicon Valley during the dotcom frenzy in the late 1990s. Silicon Beach is the center of the technology, entertainment, and digital media industries. Some notable start-ups began in this area including Snapchat, Whisper, ZipRecruiter, BeachMint, The Honest Company, Dogvacay, Realty Mogul and Nimble. It is now currently home to major tech firms like Facebook, YouTube, Yahoo, and Microsoft and Google. Of the 684 tech firms in Los Angeles, 86 percent are located in West L.A., according to a report by CBRE. More and more companies are bidding for space and the commercial real estate market is surging in response.

The increase in demand for residential property is both exciting and competitive. Properties in West LA have experienced double-digit price growth and a dwindling supply of inventory. Homes are spending less time on the market and selling well above asking prices, according to real estate agents. According to Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley, “The market is up but there is still room to grow.” Rosen says talk of a bubble is premature because home prices are only now approaching pre-recession levels. “The market is essentially regaining its footing after significant softening after the banking crisis,” he says. “Low interest rates and limited inventory are actually helping the market stabilize.”

Santa Monica, once considered the tech epicenter of the Westside, has limited office space to meet the high demand yet the city remains well-positioned in the context of this trend. Santa Monica Mayor Kevin McKeown said, Millennials (the generation born between 1982 and 2001) “are flocking to Santa Monica,” attracted in part by “our walkability, schools, parks, active Downtown, and multiple transportation options.”  McKeown said that the city was willing to work with businesses seeking to expand. However, he acknowledged that Santa Monica doesn’t have the space like Playa Vista to accommodate large concentrations of workers. According to the Santa Monica Daily Press, city planners have been recommending that City Council approve more creative office space developments, especially near stations of the incoming Expo Light Rail. Santa Monica residents are apprehensive about how an influx of employees will generate unbearable traffic and the new rail line may be the solution. The Metro Expo Line will connect Santa Monica to Downtown LA, Pasadena, San Fernando Valley, South Bay, Long Beach and dozens of points in between.

In the meantime, growth is overflowing into neighboring communities. Playa Vista still has underdeveloped land and open space to build and expand which is important to companies anticipating future workforce growth. It also has proximity to all the major freeways, the Los Angeles Airport and the beach; all big attractions for the young workers these companies compete to employ. The new development, Runway, has a prime location within Playa Vista featuring residential, commercial, retail and open space. Situated above Runway’s retail spaces will be a limited collection of 220 cutting-edge residential units. According to The Financial Times Limited, there are plans for a new development in Playa Vista with over 3,100 homes opening soon that will target young tech industry professionals.

CBRE recently released a report on the growth of creative office space in Los Angeles County that finds it has expanded beyond traditional media, tech and entertainment companies to include more traditional industries such as law firms, real estate firms and financial companies. In addition, the CBRE Research report says the trend toward a more efficient use of space is expected to continue to gain velocity as the volume of tenant lease expirations increase. One factor driving the increase in creative office strategy is the underutilization and inefficiency of traditional office configurations. Highly-functional, shared workplaces enhance collaboration, creativity and productivity. “We are seeing office tenants across all industries focusing on space optimization, increased collaboration, enhanced culture, employee wellness, and the ability to attract, engage and retain top talent,” said Gary Baragona, Director of Research and Analysis for CBRE and the author of the report.

YouTube struggled to find a complex large enough until discovering Playa Vista, said Liam Collins, head of YouTube Space L.A. “We found what we needed logistically in this neighborhood, and now we hope to be a catalyst for more like-minded companies and people to come,” he said. “Our model is really built on the idea that bringing creative people together will enhance the work product of everyone involved. Having a creative, vibrant community is critical for our success, and it’s heartening to see that grow in the last couple of years.” Yahoo moved out of Santa Monica and signed a long-term lease for about 130,000 square feet in Playa Vista. This brings at least 400 jobs and space to accommodate growth. “We worked hard to identify the right office situation in Southern California to better match our space and collaboration needs,” Yahoo Chief Financial Officer Ken Goldman said in a statement.

These companies utilize the services of real estate professionals who understand the area in which their project is to be located. There could be issues to address that the average buyer may not anticipate. An example of this could be the reluctance of a local municipality to change zoning to allow for an adaptive reuse project. Or the project may need to meet expensive ADA access requirements and there may be environmental considerations that occur when changing a project’s use. Sometimes adaptive reuse doesn’t make sense and that needs to be determined up-front. These companies don’t know how much they will expand or how fast they’ll grow and as a result have different priorities when it comes to negotiating lease deals. They want flexibility, options to expand or to contract, and shorter lease commitments.

The quality of life in Silicon Beach, actually all throughout the Westside (Santa Monica, Marina del Rey, Venice, Playa Vista) is expected to continue to attract a variety of companies.  Continued growth and success within these companies, tech, media, internet and traditional business sectors is expected to continue to spur demand for housing resulting in sales of higher home prices in all price ranges.

Please contact our office for more information on the technology industry’s impact on the West LA real estate market, available listings and consultation on successfully navigating this surging market.