Contributed By Allen Matkins Leck Gamble Mallory & Natsis LLP
The growth of US technology companies has transformed the West Coast real estate market, particularly West Los Angeles, Northern California, which includes Silicon Valley, and the greater Seattle metropolitan area. Vacancy rates are down, rents are at record highs, and buildings built “on spec” are often fully rented before completion. Further growth is constrained only by the availability and affordability of housing and sufficient transit infrastructure.
Tenants like Google and Facebook have massive power and influence in deals, and can reshape markets. Amazon held a national “request for proposals” for a home for its second headquarters, a race that was covered on the front pages of national newspapers and resulted in generous, unprecedented tax-friendly bids from potential host cities.
“Co-working” spaces, in which a large tenant takes a lease and offers shorter-term subleases to smaller tenants and startups, have transformed the leasing market. At the time of writing, WeWork in San Francisco signed the largest lease of 2018, for 251,000 square feet. Los Angeles is the second-largest co-working market outside Manhattan.
In Los Angeles, the media and entertainment industries are market movers responsible for some of the largest deals and the redevelopment of communities, such as Inglewood.
Industrial space near cities is also at a premium, as online retailers look for “last-mile” distribution hubs. Some large Southern California industrial parcels have seen a 35% increase in price per acre.
Lastly, retail space is undergoing huge transitions as consumer shopping habits change. Shopping malls with high vacancies are being transformed into mixed-use spaces.
Significant Deals and Projects
In January 2018, Apple opened its USD5 billion campus in Silicon Valley, one of the costliest buildings in the country, which will eventually house 12,000 employees, and Salesforce began occupancy of the 61-story Salesforce Tower in San Francisco. As the tallest office building west of the Mississippi, it has remade the city’s skyline.
In March 2018, WeWork inked the largest lease deal of the year thus far, for 251,000 square feet in San Francisco. Facebook is expected to announce a large San Francisco project, and Google is looking at a very large transit-centric project that would remake downtown San Jose.
In the largest lease in the city’s history, Dropbox leased all 736,000 square feet of a speculative office project in San Francisco developed by Kilroy Realty.
In 2017, Blackstone Group purchased a majority stake in a 3.3 million square-foot office portfolio, valued at USD1.7 billion. Tenants include Warner Bros, Walt Disney, and Sony.