• Los Angeles

Coworking on the Rise in Suburban South Bay/Los Angeles

Authored by Tom Sheets, Executive Director, South Bay
Contribution from Vincent Chang, Associate Market Director of Research, GLA

Across Greater Los Angeles, from Downtown to Hollywood to Santa Monica to El Segundo/Beach Cities to Long Beach and more, coworking companies currently occupy or plan to occupy over 3.0 million square feet of office space collectively.

Vincent Chang, our Associate Market Director of Research validates, “There has been an increase in demand for this young industry with a concept that is still evolving. Landlords once hesitant to embrace the coworking concept have been signing deals with these companies for several floors and adapting to the new trend.”

The Greater Downtown area (both CBD and surrounding suburban areas) remains the king of coworking, as it continues to lead the region in in total office space occupied/planned occupancy by coworking companies with a total of over 500,000 square feet, indicating that traditional high-rise Class A office buildings can also take on more untraditional layouts and uses. The suburban market of Hollywood follows with the second highest at over 289,000 square feet (sf). And now ranking third is El Segundo/Beach Cities, which has quickly advanced to nearly 275,000 sf of existing or committed occupancy in the near term, with two more notable properties added to the tabulations in 2018 (and more expected).

In terms of number of notable coworking locations, Greater Downtown also leads the pack in this category with 11, followed more closely by El Segundo/Beach Cities now with eight, then Santa Monica with seven, and Century City with six.

Vincent notes, “For 2018, we are currently tracking eight major coworking locations totaling over 364,000 square feet still set to open in prominent office buildings across Greater LA, signifying this trend will continue—additionally, most of these new locations will have creative layouts and numerous amenities. And of course, in still being early on in the year, there are potentially even more coworking occupancies that have simply not transacted yet but still have plenty more time do so. The level of new coworking occupancy in Greater LA in 2018 is already among its highest annual totals we have tracked on record (post-recession), and is pacing pretty evenly with 2017 (over 500,000 sf) and 2016 (over 600,000 sf)—the two highest annual levels tracked across Greater LA.”

Exemplifying the region’s coworking growth across the suburbs, of the nine total occupancies in Greater LA that have already transpired in 2018, eight have stemmed from suburban submarkets (i.e. outside of LA’s CBD). One of these suburbs is the South Bay, specifically El Segundo/Beach Cities.

Zeroing in on the South Bay, this office market in general has trended very well in recent years, with the last three calendar years (2015-2017) absorbing a total of over 1.6 msf of office space—respectively, 2015 and 2017 represented its highest growth levels since 2007 (and among historically). The El Segundo/Beach Cities submarket served as a catalyst accounting for well over half of South Bay’s office growth in those three years.  Among the key reasons more companies now seek establishing a presence in the South Bay are this appealing residential coastal community is heavily composed of corporate decision makers that often prefer an office location within a closer commute (i.e. less traffic). The economics can also be more advantageous as rents here are still viewed as a discount compared to other areas such as West Los Angeles. And a main reason is the South Bay, in particular El Segundo/Beach Cities, now possesses that “cool space factor” whereas less than a decade ago such desirable, modern space was virtually non-existent. Following the recession, which resulted in high vacancies well north of 20%, institutional money poured in, investing a lot of capital to renovate many older buildings that created new, high quality office space that have magnetized user activity.

Driven by both small and large corporate users, increased demand from high-tech companies, media or entertainment companies moving south along with organic growth has generated ongoing healthy market fundamentals for the South Bay. All of this market buzz has had a direct impact on coworking trends, which is tapping into some of these industries.  Along with the more traditional office occupants, coworking companies have equally become more drawn to the attractive coastal suburban environments, evidenced by coworking firm Spaces which recently executed an agreement to lease 37,373 square feet in El Segundo within the newly re-branded OPEN campus. Among the key draws for site selection at OPEN according to Michael Berretta, Vice President of Network Development, Americas for Spaces, was that “its location is just minutes away from the Los Angeles International Airport making it an ideal location for business travelers visiting California.” Spaces official occupancy at OPEN is expected within the next few months.

Other major players such as WeWork and Cross Campus are also growing their presence in the South Bay.  As such, barring any unforeseen market/economic downturn, we expect more local coworking expansion here during the remainder of 2018 and onward, as we do not believe that we have seen the full swath of coworking opportunities—including specific industry specialties—have yet reached the South Bay.

Further, there appears an increasing number of subtypes of coworking firms which themselves and as an industry have not only invented this niche concept (still in its infancy relative to the broader real estate industry), but also continue to re-invent themselves to adapt to what the market dictates. What has been really fascinating is that coworking companies are no longer just accommodating smaller uses, like individuals or startups, etc., they are now in search of and working in conjunction with major businesses, catering to their specific client needs and tailoring spaces to meet their corporate identities. Among the attractors for corporate users utilizing the coworking model has been its flexible term, along with other related perks such as providing business and amenity services; all of which may impact a company’s bottom line. And from a Landlord perspective, one of the symbiotic benefits—beyond the obvious tenancy coworking provides—is that some coworking options lead to a path of growth which may allow a company to expand beyond the coworking model and into a larger direct lease term at some point in time, similar to that of incubator space.

So is coworking here to stay? Only time may tell, and it could take a market downturn to truly determine the sustainability of this concept on the rise and now flourishing across the world. And more so, which ones will survive and or perhaps even consolidate efforts if necessary. But for now, it appears coworking is aiming to dig its roots deeper into the commercial real estate ecosystem and landlords and tenants are growing along with it, and we fully expect it to remain part of our industry ahead.

Should you be interested in reading additional compelling insight around the topic of coworking, please also check out our extremely popular Americas blog post: 8 Things You Should Know About Coworking Space in 2018

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