Netflix, Amazon fuel LA office demand

Bloomberg

‘House of Cards’ needs more room. Netflix Inc., the streaming service that’s home to the political drama, last month leased an entire five-story office building in Hollywood, less than three months after signing a decade-long deal for adjacent stages and production offices, bringing its total space in the Sunset Bronson Studios complex to more than 500,000 square feet (46,500 square meters) — roughly the size of five Wal-Mart stores.
The surge in online television viewing is spurring a wave of big real estate deals, as companies such as Netflix, Amazon.com Inc. and Google snap up space to cope with increased production demands. The amount of office space the entertainment industry occupies in Los Angeles County has climbed to the most this decade, with media tenants in 25.5 million square feet, up 2.99 million square feet from five years earlier, according to brokerage CBRE Group Inc. The space the streaming companies lease has evolved from the small offices of a few years ago to the giant production facilities typically associated with traditional Hollywood studios.
“The sort of boom around those marketplaces has been specific to the digital media and the entertainment world converging with the technology world,” said Victor Coleman, chief executive officer of Los Angeles-based Hudson Pacific Properties Inc., Netflix’s landlord at Sunset Bronson Studios.
The surge in leasing by entertainment companies reaches from downtown L.A. and Hollywood to Playa Vista, once a stretch of marshland between Los Angeles International Airport and Venice that’s become known as “Silicon Beach” because of an influx of media companies and digital startups. Entertainment-industry growth has helped an office market hurt by a years-long exodus of traditional users of corporate space, including hotel operator Hilton Worldwide Holdings Inc. and defense contractor Northrop Grumman Corp., both of which moved to Virginia.
Like Netflix, BuzzFeed Motion Pictures set up offices in Hollywood, while Amazon Studios is in Santa Monica and producers of original shows for Hulu’s service have used space at Culver City’s historic Culver Studios, where classics such as “Gone With the Wind” and “Citizen Kane” were filmed. Netflix’s expanded Southern California facilities will be spread across multiple buildings at Sunset Bronson Studios, former home of Warner Bros. Studios, where “The Jazz Singer,” the movie industry’s first “talkie,” was filmed in 1927.
“What’s going on in L.A. now is very similar to what we saw many years ago, when the cable companies were growing rapidly,” said Jeff Pion, a vice chairman at Los Angeles-based CBRE. Rising demand for digital content, and the additional production that comes with it, mirrors the era when cable subscriptions climbed and new TV channels brought viewers more options, he said.

GOOGLE, FACEBOOK
Hollywood isn’t alone in offering historic facilities to new-media companies. Playa Vista — where companies including Alphabet Inc.’s Google, Facebook Inc. and Yahoo! Inc. now have space — is on land that once was an airstrip for pilot and movie producer Howard Hughes, an allure not lost on its current tenants.
“Everyone wants to work where Howard Hughes was,” said Alison Girard, Brookfield Residential’s director of marketing for Playa Vista. “They want to come to a place with a story.”
Google was one of the first companies to migrate south from Silicon Valley in 2003, initially setting up shop in Santa Monica before moving to Venice Beach. In 2014, it acquired 12 acres (4.9 hectares) in Playa Vista, including the hangar where Hughes built his “Spruce Goose” airplane. Google’s YouTube unit also has about 41,000 square feet next door under a long-term lease. Last week, real estate developer Tishman Speyer announced that it leased more than 50,000 square feet of creative office space in Playa Vista to Loyola Marymount University for its School of Film and Television graduate programs.
Demand for space is being bolstered by both commercial and critical successes for the streaming services. Netflix signed up a record 7.05 million new customers in the fourth quarter, topping analysts’ estimates for domestic and international growth to cap the company’s first year as a global online-TV service. Its show “House of Cards,” an Emmy nominee for outstanding drama series last year, returns for a fifth season in May. Amazon, meanwhile, last month made history by becoming the first online-video service to receive an Academy Awards best picture nomination, for “Manchester by the Sea,” which secured a total of six Oscar nominations.

RUNNING DOGS
Entertainment companies have very different demands from those of older L.A. tenants like Hilton, Northrop and Occidental Petroleum Co., which moved to Houston in 2015. In Playa Vista, offices are spacious and relaxed, with young people in leggings and beanies working on their laptops while lounging on couches, sunk into beanbag chairs or perched on bar stools. Neon signs with inspirational phrases hang on the walls, while sliding doors link indoor dining rooms to outdoor patios strewn with hammocks and foliage. Employees’ dogs run from room to room. “Our mom and dads’ office space is not the office space we want to work in today,” said Brookfield’s Girard, adding that the style once favored mostly by technology and media companies is catching on with traditional office tenants. “Now banks and lawyers want creative space too.”

YOUTUBE PROXIMITY
Streaming service and content producer Fullscreen Inc. moved into its Playa Vista offices almost two years ago, and CEO George Strompolos said the open floor plan and modern amenities fostered the kind of creativity that drives the company’s business model. Proximity to YouTube and other similar companies was also a big draw.
“We kind of liked the idea of what was brewing with the Silicon Beach community,” Strompolos said. “We like our neighbors, most of which are collaborators, some of which are competitors. It keeps it interesting.”
Cheryl Idell, West Coast lead of marketing firm MindShare, which moved from Santa Monica to Playa Vista in June 2015, also said the open spaces allow for collaboration and a more relaxed environment. CBRE’s Pion predicted that older media companies such as CBS Corp. and 21st Century Fox Inc. will start to retool their offices to offer the type of amenities millennials have come to expect, and some companies have already taken steps in that
direction.
Warner Music Group leased a 257,000-square-foot renovated Ford auto plant in downtown L.A.’s trendy Arts District, and Viacom Inc. has consolidated its West Coast operations, which were scattered across the region, from Burbank to Santa Monica, into one central Hollywood office building leased from Kilroy Realty Corp.

NEW MODEL
“You’ve got all the existing studio companies, which is Sony, Fox, Disney and Warner Bros., and they’re not just going to say, ‘OK, we’re going to stick to the old model,’” said Coleman, the Hudson Pacific CEO, whose company had 42.2 percent of its tenants in the tech industry and 13.6 percent in entertainment last year.
The expansion of streaming companies’ office space has coincided with L.A.’s efforts to attract more production. Last year, revised incentives were introduced, which led to 6.2 percent more shooting days than in 2015, while the number of feature films shot in L.A. jumped 12 percent, according to FilmL.A. Inc., the official film office for the city and county. New media, however, has used few tax incentives, with only Hulu’s “Citizen,” Netflix’s “13 Reasons Why” and Amazon’s “Good Girls Revolt,” which has been canceled, receiving subsidies last year, said Philip Sokoloski, a FilmL.A. spokesman.
The convergence of entertainment and tech has created new outlets for production while also leading to greater use of office space. Technological advancements have scaled down the number of people required to work on sound stages and boosted demand for offices as employees move behind computers. Still, not all buildings are benefiting. Traditional office properties are still coping with high vacancies, with younger workers expecting the catered food, open floor plans and ultra-casual dress codes that are rare in towers home to accounting and law firms.
David Simon, executive vice president of Southern California for Los Angeles-based Kilroy, Viacom’s landlord, said some traditional office buildings “can be transformed” for companies seeking looser, more creative space — as long as landlords have “the right vision and the right capital.” In the meantime, media and tech tenants will continue to seek space in places like Hollywood and the Arts District as they seek to produce content in the entertainment capital of the world.
“They’re all looking, and they’re all coming,” Hudson Pacific’s Coleman said. “We’re in a pretty strong wind tunnel and we’ve got it blowing behind us.”