Santa Monica’s second act

Santa Monica is the third point of a golden triangle that also encompasses the trendy office markets of Hollywood and Playa Vista. But while the latter two neighborhoods have seen a particularly pronounced surge in popularity in recent years, market pros say that Santa Monica — once the darling of the first-generation tech industry — is finally getting its mojo back.

After a tough spell in the several years following the Great Recession — Yahoo!, for instance, migrated from Santa Monica to Playa Vista in 2015 — some startups are beating a path to Santa Monica. “All of a sudden, there’s a pretty good flow of new players,” said Carl Muhlstein, JLL’s regional director.

Aside from the obvious appeal of holding business lunches with an ocean view and team-building activities at the beach, factors such as improved public transportation, entertainment opportunities and new and renovated office space have boosted the area’s leasing activity, with a 30-percent year-over-year increase in leasing volume for Class A properties in 2016.

The office market got a shot in the arm in May 2016, when the L.A. Metro’s Expo Line opened the 26th Street/Bergamot Station. Also helping things is the diverse mix of retail and restaurants along Santa Monica’s business corridor, located around Colorado Avenue and 26th Street. The long-popular Third Street Promenade shopping district, anchored by Santa Monica Place mall, is just five minutes away by car. “All of the exciting neighborhoods in transition start with a solid retail and residential base,” Muhlstein said.

(Click to enlarge)

These attributes have combined to keep rents high, even compared to what some deem its “sexier” competition. Average asking rents for Class A Santa Monica office space were at $5.38 per square foot in September 2016, compared with $4.43 in Hollywood and $4.88 in Playa Vista, according to JLL. The rents in these submarkets were substantially higher than the averages for Greater L.A.’s overall Class A average asking rents, which came in at $3.37 a month in the third quarter, according to Colliers. 

Muhlstein predicted that current trends would reduce Santa Monica Class A office vacancies to the single digits by the end of 2017, from 19.2 percent in September 2016. By comparison, the Class A office vacancy rate then stood at 13.8 percent in Playa Vista, about the same as the Greater L.A. average.

Developers have taken notice and are beginning to build new office projects. Colorado Creative Studios is building Santa Monica Gateway, a two-building project at 2834 Colorado totaling 200,000 square feet of Class A office product. It is set to be delivered around October or November 2017, with Muhlstein as the leasing agent. And New York-based Clarion Partners worked with Dallas-based Lincoln Property Company to renovate 2710 Olympic Boulevard, now known as the Pen Factory, into 222,000 square feet of creative office space, set for delivery in June or July 2017.

Meanwhile, big investors like Boston Properties and Brightstone Capital Partners have been snapping up properties that are among the top investment sales on The Real Deal’s ranking of the Santa Monica office market. 

These owners are banking, at least in part, on Santa Monica’s resurgence in popularity as a tech hub.

In a big commitment to the area, Oracle purchased a 316,000-square-foot office building at 2600 to 2800
Colorado Avenue. Inset: Oracle chairman and founder Larry Ellison.

Oracle deepened its commitment to the area in 2016, when it bought a 316,000-square-foot office building occupying 2600 to 2800 Colorado Avenue, between 26th Street and Stewart Street, for $368 million. It paid $1,165 per square foot — a record-breaking price. (The previous record was set by Douglas Emmett’s 2016 purchase of Blackstone’s SeaRise Office Tower at 233 Wilshire Boulevard for about $1,082 per square foot.)

Oracle also signed two of the top five biggest leases in TRD’s ranking of the submarket. The Redwood City-based global tech giant has two separate leases in the building at 1620 26th Street, between Olympic Boulevard and Colorado Avenue, totaling more than 140,000 square feet. CBRE was the leasing brokerage.

Other top new leases were signed by media and entertainment companies AwesomenessTV (owned by DreamWorks Animation), Beachbody and Hulu.

AwesomenessTV, a streaming-video
company with programming aimed at millennials and Generation Z, inked a 10-year lease for 86,000 square feet at the Pen Factory.

Rick Buckley, principal at LA Realty Partners and a leasing rep on the project, said that there was some initial skepticism in doing the deal among some of the parties involved as they were not familiar with AwesomenessTV, which he described as, “a fairly new business model in the media and entertainment worlds.” However, the deal went through when Clarion ultimately saw AwesomenessTV as a potential driver of the future development along Santa Monica’s business corridor.

“There has been a huge shift away from traditional media in the last 10 years and toward more technology-driven platforms,” Buckley said, adding that Santa Monica has several advantages for new players in the entertainment industry, such as office buildings with large floor plans that lend themselves to flexible configurations, a density of new media players and proximity to fashionable residential areas such as Pacific Palisades, Malibu and Beverly Hills.

(Click to enlarge)

Beachbody, which produces a line of popular home fitness DVDs, signed a lease for an additional 69,000 square feet in the Lantana office building at 3003 Exposition Boulevard, expanding the company’s existing corporate headquarters in the building to 200,000 square feet. The addition will accommodate the expanding technology team, according to a representative for Beachbody.

“This is going to be a really fun space that sparks creativity and helps our team have a great time at work, while helping Beachbody continue its evolution into a tech powerhouse,” said Jon Congdon, Beachbody’s co-founder, president and CMO, in a public statement.

Hulu ranked fifth in TRD’s list of new Santa Monica office leases. The Internet streaming company signed a lease for more than 32,000 square feet in Colorado Center at 2450 Broadway near the 26th Street and Colorado Avenue intersection. 

While companies such as Hulu and AwesomenessTV are geared toward millennials, Muhlstein said that Santa Monica’s appeal is ageless.

“Everybody talks about the millennials,” he said. “But based on overall interest in the area, I am sure they do not necessarily corner the market on the Santa Monica lifestyle concepts that blend into the area’s workplaces.”