FAANG takes a bite out of LA In a race to snap up the biggest office spaces left in the city, Facebook, Apple, Amazon, Netflix and Google have energized the market — but is a correction looming?
(Illustration by Studio Muti)
Over the past handful of months, the tech titans of Silicon Valley have launched an all-out blitz on commercial space in Los Angeles.
In October, Hudson Pacific Properties signed a deal with Netflix for the streaming giant to take the entire 13-story Epic building in Hollywood while it was still under construction. A month later, Kilroy Realty leased the entire office component of its nearby Academy on Vine project to Netflix, while it too was under construction.
In January, Tishman Speyer closed a deal for Facebook to occupy 260,000 square feet at the Brickyard campus in Playa Vista — more than twice what the social network said it would lease five months earlier. Only days later, Apple struck, reportedly engaging in talks to grab the remaining 150,000 square feet at One Culver in Culver City.
And in the biggest deal of the recent wave, Hudson signed up Google for all 584,000 square feet of the Westside Pavilion mall in West L.A., capping a four-month period in which Google increased its space in Los Angeles nearly sevenfold.
Just those five deals, part of a late-season acceleration of office leasing by major tech firms, added at least 1.6 million square feet to their growing L.A. portfolios.
“The leasing activity by these tech and media companies over the past 60 days has been unprecedented,” said Owen Fileti, senior executive director with L.A. Realty Partners. “This level of positive office space absorption is extraordinary, and it propels market expansion.”
The spate of transactions is part of a scramble for office space in L.A. that has been underway among Silicon Valley companies with growing ambitions — and matching deep pockets — to expand their operations. Leading the push are the so-called FAANG companies: Facebook, Amazon, Apple, Netflix and Google. They are locking up many of the largest and highest-quality spaces in Hollywood, Culver City and Playa Vista, driving up rents while helping to fuel residential development around their facilities.
The run on commercial space has been a boon for major developers like Hudson, Kilroy and Hackman Capital Partners. And yet the recent push also comes at a disquieting time in the tech industry that has even some beneficiaries — as well as observers — of the L.A. boom wondering whether the mad dash for space is a little too good to be true.
“I wake up every morning thinking this is the day that everything falls apart,” said Michael Hackman, the CEO and founder of Hackman Capital. “With all these people running around creating content, at what point do you reach saturation in the market?”
For Hackman, the ghosts of the first dot-com crash — when failing startup firms like Pets.com abandoned dozens of commercial spaces in the Bay Area — are real. “We are roughly around the same time frame in the cycle today as that downturn,” he said.
Christopher Rising, the president of Rising Realty Partners, another L.A.-based developer, agreed that the tech firms may be moving too quickly in their rush to scoop up available properties. “There is going to be a hiccup at some point,” Rising said. “I have no doubt that someone is going to stub their toe and get overly optimistic about what their needs are.”
The nervousness reflects a growing tension in the commercial developers’ burgeoning relationships with the Silicon Valley firms. In many cases, the recent melding of tech and content that led FAANG and its ilk to set up shop in L.A. caught developers by surprise.
“If you had asked me five years ago would you see Apple and Amazon in Hollywood or L.A., I would have said, ‘Well, maybe a small sales office,’” said Robert Paratte, the executive vice president for leasing and business development at Kilroy.
Lately, seesawing valuations of major tech stocks have driven down the Nasdaq, fueled by a trade war with China and concern on Wall Street about the hyper-competition for the streaming video content market being led by Netflix. That’s not to mention potential regulatory concerns around Facebook and Google due to their expanding reach and ongoing privacy issues.
All of that has some commercial players wondering whether the sudden decline of Snap Inc., which led the firm to abruptly pull out of all of its office space in Venice Beach early last year, was more than a fluke. The L.A.-based tech firm exited 14 properties in one week and moved to Santa Monica. Only about 20 percent of that space has since been subleased.爱上海同城