For today’s hot Los Angeles start-up, Santa Monica has been the preferred location due to its collaborative environment and lifestyle amenities. However, limited creative space and L.A.’s highest rents pose problems for the growing Santa Monica company. Thus emerges Santa Monica’s role as an incubator, housing start-up companies until they need to expand into peripheral markets that can provide a similar lifestyle, yet significant cost-saves on their real estate spend.
What is Santa Monica’s function?
Santa Monica is currently called home by a plethora of technology and creative companies, VCs, Accelerators, and Incubators. With Santa Monica creative space vacancy rates at 4% and rental rates surpassing $4/square foot, it is becoming increasingly difficult for growing companies to find space and/or fit it into their budget. Thus, Santa Monica’s role has become more of an incubator, fostering companies until they reach a certain size and then have to consider peripheral markets. If growing companies can’t seem to part ways with their beloved Santa Monica they are forced to either pay high rents, have split occupancy, or generally sacrifice real estate efficiencies.
Rod Gould, City Manager, and David Martin, Director of Planning & Community Development, recently confirmed that Santa Monica is continuing to push forward as the premier destination, with initiatives like improving the plan check approval process, broadband internet speeds that only NYC can compare to, construction of new affordable housing, and construction of a Light Rail.
Where to go after or instead of Santa Monica?
Some of Santa Monica’s peripheral markets (i.e. Marina Del Rey, Venice, Playa Vista, Culver City, El Segundo) have already begun to see growth in their tech and creative sectors due to spillover from Santa Monica, especially those by the beach that can provide a similar lifestyle. Further, there has already been some big, long-term moves to these markets by some heavyweights like Facebook, Google, and Zynga that truly legitimizes and sparks more desire for these areas. When comparing Marina Del Rey and Venice to Santa Monica, the significant disparity in vacancy rates (26% vs. 7%) and average rental rates ($2.70 vs. $3.50) depicts the expansion, flexibility, and cost-save opportunities available.
A growing company needs to diagnose and analyze its office leasing choices, weighing the Pros and Cons discussed above against the future needs of the firm. Santa Monica is a phenomenal location for a company, but is perhaps not suitable for all phases of a company’s life cycle- especially a tech company.
*Shared by Ted Simpson, Scott Steuber & Jeff Vertun