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Is Office Warming Up?

Los Angeles

Take a look at your smartphone. All those little icons—from gaming to social media—represent what's driving growth and the dynamics of the LA region's office market. (Hey, stop trying to beat Level 473 on Candy Crush and continue reading.)

Yesterday, we chatted with CBRE senior managing director Jim Kruse (snapped in January at our State of the Market event), who says that while Santa Monica and Silicon Beach are still the hot markets, Downtown LA is moving into the spotlight with more creative users looking for space.

Jim says fashion brands Ella Moss and Splendid are representative of creative office leases inked in Downtown LA. They moved their HQs into 38k SF and 40k SF, respectively (though, if anyone asks just say a lady never tells her office size), at the sprawling Alameda Square complex. Other examples include Aeropostale e-tailer GoJane (10k-plus SF), Ahbe Architects (11k SF), and Steelcase (18k SF).

We used our Bisnow time machine to go back to last April and snap the demolition of the Wilshire Grand Hotel, making way for Korean Air's  office/hotel skyscraper. The 73-story development was part of the 1.3M SF of office space underway in Q4 '13—the largest volume of construction since Q1 '10. Jim says this new space coming on the market will be trendier, designed with those creative tenants in mind: higher ceilings, open floorplans, more communal space outside, and balcony areas. "24/7 is going to become the new design in office buildings." (Not a morning person? How 'bout a midnight person?)

El Segundo is also heating up, as small tech and media firms get priced out of the Westside. According to JLL's Steve Solomon, El Segundo dominates the South Bay office market. He recently repped Santa Monica-based Montana Avenue Capital in the purchase of The Station, a 52k SF office building in El Segundo, for $11.3M. The buyer plans to redevelop it into a Class-A creative campus, adding such de rigueur items as collaborative open space, outdoor workspaces, abundant surface parking, and individual entrances for tenants. Steve also repped seller LA Ventures VI along with colleagues Eric Adams and Chris Strickfaden.

In the San Fernando Valley, NAI Capital SVP Cathy Scullin (getting ready to go kayaking on the Charles River in Boston last summer with her son Christopher and husband Bob) sees the Ventura Corridor hitting single-digit vacancy this year. Occupancies among the cost-sensitive tenants in the Van Nuys area are improving, she adds, as Sherman Oaks and Encino recover. She's also seeing a lot of activity among quasi-government, health-related entities in her markets. Another big trend: Building owners with second- and third-gen space are tearing out private offices to create more open and collaborative floorplans. (No more corner offices, now the whole floor is a four corner office.)

Burbank continues to be an entertainment industry hotbed, even though vacancy shot up to a historic level last year when Disney vacated 470k SF in the Tower Burbank. A JV of Worthe Real Estate Group and PCCP has reportedly snapped up the building, 3900 W Alameda Ave, for $109M. As for the future, the biggest unknown are the Millennials, who'll make up a significant portion of the workforce, and their impact on office demand. They can pull into a Starbucks, flip on their laptop, and they're working, Jim says. "People don't necessarily need to be in an office with paper spread out in front of them to work anymore."