How far inland can Silicon Beach reach?
Software developer Daqri will move this week to its permanent home at LA Center Studios, a sprawling 20-acre complex just west of the 110 freeway across from downtown Los Angeles.
The company, which had been in Santa Monica, joins a handful of pioneering media and technology companies that have already settled in a downtown market more accustomed to white-shoe lawyers and staid bankers.
Other notable additions to the fledgling roster of media and tech companies in downtown’s Financial District include e-commerce fashion company Nasty Gal, which moved into 50,000 square feet at the PacMutual building at 523 W. Sixth St. building in February, and Michael Bay’s Institute for the Development of Enhanced Perceptual Awareness, an Emmy Award-winning media company that moved from Venice about two years ago. Startup Scoutfit, an online shopping company that launched just last week, made its home in a small office at the 12-story Spring Arts Tower at 453 S. Spring St.
“Downtown is now being perceived as a cool place to work and a cool place to live,” said Chris Penrose, a leasing agent at CBRE Group Inc. who represents the 12-story Roaring Twenties building at 617 W. Seventh St.
“We’re seeing some of these younger, hipper companies evaluate downtown,” he said. “They don’t always move here, unfortunately. But downtown is definitely on the radar now and that’s a lot more than where it was just five years ago.”
Carle Pierose, a partner at Santa Monica real estate services firm Industry Partners who handles leases for the PacMutual building, said he has given downtown L.A. office tours to more media, technology and entertainment companies in the last year than in any previous year.
“I’ve done more than 40 leases here in the last year and most of those have been with creative firms,” he said of the building that was recently renovated to appeal to creative tenants. “We’re getting lots and lots of architects and a fair number of furniture- and construction-related companies. But something I’m really pleased about is we’re starting to see some entertainment and technology come here.”
Brian Mullins, chief executive of Daqri, an augmented reality software firm, was traveling and could not be reached. But Dan Gallup, a senior vice president for tenant brokerage Cresa Los Angeles in Brentwood who represented Daqri in lease negotiations for the company’s 18,000 square feet, said for it and many other tenants he takes on tours through downtown, the attraction was both geographic and economic.
“It’s easier to get in and out of downtown from different parts of Los Angeles and the space in the building itself was very attractive to them,” he said. “So, too, were the economics.”
The creative space these tenants are drawn to on the Westside is more expensive than creative space downtown. There are no surveys of creative space rates, but they generally reflect the Class A distinction. The average monthly asking rent for Class A Santa Monica office space in the third quarter was $4.64 a foot; in downtown, it was $3.22.
Industry Partners’ Pierose said rental value is one of the biggest drivers of traffic through the building. Since Rising Realty Partners purchased the property for $60 million two years ago, rents have jumped to nearly $3 a square foot a month from about $2. Upper levels with panoramic views demand rents closer to $4 a foot.
“I’ve raised the rent probably six or seven times since I’ve been working on the building, but the rent there is still a deal compared to other parts of town,” he said. “If PacMutual was in Santa Monica, it would lease for approximately $6 a square foot.”
The allure of downtown has been such that it made the short list of a few firms that, though they chose to settle elsewhere, might not have even looked at the submarket a year ago.
In recent months, media and technology companies including Riot Games, SpinMedia and Fox Animation Studios have all toured property downtown. While none of them ultimately signed a lease in the area – Riot Games went to West Los Angeles, Fox Animation to Hollywood and SpinMedia opted to stay in Hollywood – their interest marks a shift in attitude toward the city’s urban core.
Yet even as interest in creative office space downtown grows, readily available supply is limited.
CBRE’s Penrose said that only a couple buildings – including PacMutual and 617 W. Seventh – are widely considered appropriate for companies looking for true creative office space, and space in those buildings is getting tight.
“There’s a lack of supply, especially in the central business district,” he said. “You can look in the Arts District or go further east for older historical buildings, but a lot of those buildings need to be retrofitted and a lot of money needs to go into them to get them ready for occupancy.”
So until more creative office space comes on line in the area, Gallup said it’ll continue to be a challenge to convince media and technology companies he represents to call downtown home.
“For a lot of these tenants, when they can’t see the final project and see the other tenants in there, it makes it a little harder for them to imagine that the building is going to become something different,” he said.
Up-and-coming video game publisher Riot Games Inc. will move to a new campus in West Los Angeles after signing what may be the biggest new office lease in Southern California in the last five years.
The maker of international online gaming hit “League of Legends” has agreed to rent all 284,000 square feet in the Element LA creative office campus being built on Olympic Boulevard between Bundy Drive and Centinela Avenue.
Riot Games makes only the one game, but it operates around the clock. Each month more than 32 million people in nearly 150 countries play “League of Legends,” making it one of the most-played computer games in the world. Teams of players gather in virtual arenas to battle over turf.
Riot Games staffers are now scattered among multiple locations in a Santa Monica office complex. The company expects to move 1,000 employees to Element LA when it opens in 2015 and plans to keep growing to 1,500 workers at that location.
Element LA is a $150-million development by Los Angeles landlord Hudson Pacific Properties Inc. Terms of its 15-year lease agreement with Riot Games were not disclosed, but Hudson Pacific was asking for monthly rent of $3.75 a square foot, according to property experts familiar with the Westside.
Hudson Pacific is making Element LA into a five-building complex on 12 acres. The centerpiece for the campus is a 1950s-era, 167,000-square-foot building with high wood bow truss ceilings, saw-toothed skylights and industrial windows.
“Element LA is a one-of-a-kind property that generated significant interest from prospective tenants,” said Victor Coleman, chief executive of Hudson Pacific.
Among the would-be occupants were white-collar firms not engaged in creative businesses such as entertainment or technology, which usually gravitate to conventional high-rise office space, Coleman said.
Riot Games wanted the whole campus, which gave them a leg up in the deal.
“We really loved the idea of having one tenant in the whole campus, and Riot Games liked the idea of a dedicated campus exclusively theirs,” said real estate broker Jeff Pion of CBRE Group Inc., who helped represent Hudson in the transaction.
Element LA will have a five-story parking garage and is across the street from a planned stop on the Expo Line light rail line, which is under construction and will connect Santa Monica and downtown Los Angeles.