LA office leasing drops in Q4 amid WeWork, tech sector pullback

Overall activity was down 15% in LA and landlords may hesitate to lease space to flexible office providers in the future, Savills reported

Jan.January 13, 2020 08:00 AM
Los Angeles skyline (Credit: iStock)
Los Angeles skyline (Credit: iStock)

What goes up must come down.

WeWork and most other co-working, technology and media firms hit the brakes on new leases in Los Angeles in the fourth quarter, contributing to the slowest quarter of the year. There was one exception: Netflix added space, albeit a modest amount.

Leasing activity totaled 3.8 million square feet in L.A. from October through December, a nearly 16 percent drop from the 4.5 million square feet over the same period a year ago, according to the latest Savills office market report.

Unlike recent quarters, there was no significant leasing activity from flexible office providers at the end 2019, in part a result of the fallout from WeWork’s implosion over the fall. WeWork had previously been on a torrid pace, amassing some 2 million square feet of office leases in L.A.

More ominously, it was also a possible sign of local landlord hesitance to continue to lease space to the sector, Savills noted.

Compare the fourth quarter’s lull to Q2, when the same firms — including FAANG: Facebook, Amazon, Apple, Netflix and Google — gobbled up vast amounts of L.A. office leases to the tune of 5.3 million square feet. That total marked a three-year high, Savills reported at the time.

Meanwhile, Class A asking rents rose 3.7 percent year over year, to $3.69 a foot per month, while overall asking rents ticked up 6.2 percent over the same period, to end the year at $3.50 a foot per month.

Netflix, the outlier
Availability in Downtown L.A. remained high in the fourth quarter, while Westside submarkets are still tightening. Overall office vacancy stood at 23 percent in Downtown and 14 percent on the Westside, compared to an L.A.-wide market average of 18 percent.

Following the rush of tech- and streaming-firm leases over the last two years, options were limited for tenants looking for large space in the city — particularly in prime locations like the Westside and Burbank, Savills reported.

Because of that tightening on the Westside, companies may shift to the South Bay, Downtown and Airport submarkets. The Downtown/Arts District will also “attract tenants with its newer developments, creative options and generous concession offerings,” Savills noted.

While most of the tech firms pulled back on L.A. leases in the fourth quarter, Netflix added to its already enormous total. The streaming service leased an additional 85,000 square feet, at Burbank Studios. Through the third quarter, Netflix leased or committed to taking 1.6 million square feet of office space in L.A., much of it in Hollywood.

Last fall, Netflix inked two massive leases in Hollywood: one for 355,000 square feet at Kilroy Realty’s Academy on Vine project at 1341 Vine St.; and the other for 328,000 square feet at Hudson Pacific Properties’ Epic Hollywood construction, a 13-story office development at 5901 Sunset Boulevard.

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