Entertainment, Media Helping LA's Struggling Office Sector Limp Along

In September, Netflix signed a 171K SF office lease in Burbank with plans to install its first dedicated animation studio at the property. The streaming giant initially planned to lease 150K SF, but it added on 21K SF more in the largest lease of the year to date, CoStar reports. 

The coronavirus made 2020 a deeply lackluster year for office space, but the fact that the biggest lease of the year is an entertainment client served to highlight how the sector’s performance has been a bright spot on an otherwise dreary office landscape. 

Workers in the film and television industry are considered essential in California, though they are required to follow public health protocols. Filming during the coronavirus pandemic has been expensive and logistically complicated when it’s been possible at all, but it is happening.  

A huge part of the need is driven by the so-called streaming wars between digital media services and the explosive rise in demand for content that was exacerbated by the pandemic. 

Fueled by that demand, most entertainment tenants didn’t give up space even when LA production was shut down during the first couple of months of the pandemic, said Jennifer Frisk, senior managing director of Newmark’s Downtown Los Angeles office. 

Some asked for rent relief from studio landlords early on in the pandemic, but Frisk said she didn’t know of any studios that granted relief. 

Production offices and studio space, like soundstages where filming happens, are two different types of space that the entertainment industry relies on. In some cases, like in the planned expansion of Hollywood’s Sunset Gower studios, they are built together on one lot.

Another big entertainment-related lease in the LA area was in Santa Clarita, where LA North Studios leased a roughly 114K SF industrial building. LA North Studios plans to convert the building, which is part of a larger complex developed by Trammell Crow and Clarion Partners, into a soundstage that should be up and running by early 2021. 

“All of our sound stages are fully committed, and this expansion allows us to meet our clients’ needs today and into the future," LA North Studios co-founders Anthony Syracuse and John Prabhu said in a statement announcing the lease. 

Entertainment-focused development is also forging ahead in the pandemic. 

Blackstone Group announced in November that it was teaming up with Worthe Real Estate Group to move forward on a 500K SF office project in Burbank aimed squarely at entertainment tenants. It is one of the largest office developments moving ahead this year, The Wall Street Journal reported.

“Our business comes down to identifying themes we believe in, and then finding ways to invest in those themes,” Blackstone Head of Real Estate in the Americas Nadeem Meghji told Bisnow in August. “Content creation is a megatrend, and there has been explosive growth in both the demand for content and the spend among traditional media companies and the big film studios.”

The entertainment office market was relatively good this year, but it wasn’t anywhere near as strong as recent, non-pandemic years, when companies like Netflix and Amazon leased entire buildings or studio complexes before they even opened their doors, Freiberg said. And the need to compete among entertainment giants and optimism about the future of entertainment and media in LA isn’t enough to totally pull up its office market. 

The year will end with the office sector deteriorating “at an accelerated pace,” according to CoStar. Vacancy is above 12%, which is in line with the last economic downturn, and sublease space is hitting record highs. 

Hudson Pacific Properties’ Sunset Gower Studios expansion, which would add a 15-story office tower and two soundstages, secured a critical approval this month from the city's planning commission. This project, too, is a joint venture with Blackstone, which bought a 49% stake in three of Hudson Pacific’s studios over the summer. 

Though the Sunset Gower plans were initially submitted in 2017, the continued push forward on the project shows that developers are still bullish on entertainment uses moving, said JLL’s Michael Freiberg, who works with entertainment and creative industry clients. 

“The demand is still there,” Freiberg said.