Traditionally, the office market in downtown Los Angeles has featured just a few of the same players, with landlords always trying to get each other’s tenants because of a lack of growth. However, that has been changing lately, with big investments changing the look and feel of downtown.
Currently there is more than one million square feet of old warehouses and office buildings that are being overhauled, with at least seven projects in the works, according to CoStar Group, a real estate data firm. The developments are mostly targeting creative companies in the technology, media, and entertainment industries. Combining these current projects with future, similarly planned projects, there are some concerns about oversupply. So far, few firms have actually moved into the area.
The downtown market as a whole has been stagnant for many years. During the 1980s, downtown Los Angeles was a haven for skyscraper construction, but lately companies have started to move west, towards places like Santa Monica. In the downtown area in September, companies used about 1.2 million fewer square feet than they did a decade ago.
The development in downtown LA is similar to development that has been seen in other large cities in the country, where office developers have worked on converting brick warehouses into creative spaces. Developers are anticipating that companies will come to prefer this style more and more, and hope to have infrastructure in place as it happens.
One example is the Arts district on downtown’s eastern edge, which developers hope will draw companies that employ a lot of young people. The hope would be to create an urban area similar to the Meatpacking District in Manhattan. A 26-acre printing plant for the Los Angeles Times is one such building, as developers can see new uses for buildings like that.
While it might take a few years to develop warehouses into trendy office buildings, though there is some work already in development. One group of investors, including Atlas Capital Group and Square Mile Capital LLC, paid $357 million last year for a 1.7 million square foot warehouse set on a 32 acre lot. They plan to make it into a center for both retail and offices, spending hundreds of millions of dollars. Among other things, a massive parking garage is under construction at the site.
Other examples include Shorenstein Properties, who converted a former Ford factory into a 250,000 square foot office building. North of that, Hudson Pacific Properties is converting a former Coca-Cola bottling plant, as well as another nearby warehouse, eventually turning it into office buildings.
One reason for the interest from development companies is the belief that companies in the creative industries will have a hard time finding other areas of Los Angeles to settle in. Additionally, the downtown area is growing in appeal, with neighborhoods like Echo Park and Silver Lake growing more popular.
One archetype for a project like this is the Playa Vista neighborhood, a former airfield on the west side of LA that has seen an increase in activity over the past few years, and has tenants such as Google, Sony, and PlayStation. However, companies are trying to learn what they can from Playa Vista, where numerous developers ran into financial troubles after the economic downturn in 2008.
For now, however, companies are remaining very optimistic.
Photo Credit: Steve and Julie
