Landlords rip out escalators and walls to attract tenants like Google and Netflix

Landlords rip out escalators and walls to attract tenants like Google and Netflix

https://www.latimes.com/business/la-fi-google-amazon-netflix-land-grab-20190616-story.html

Google’s January announcement that it would take over much of the failed Westside Pavilion shopping center, which is becoming offices, showed technology disrupting retail in the most concrete of ways.

But even more, the land grab underscored the ascendancy of a new class of whale-size office tenants — tech giants turned media moguls. Those companies are gobbling up vast chunks of Los Angeles-area office space in a race to set up shop for fast-growing entertainment divisions.

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Companies including Google, Amazon and Netflix have agreed to rent entire buildings before construction has even begun, setting off a scramble in recent years to erect billions of dollars’ worth of new offices and production facilities to accommodate them.

Content creators, as such businesses are known, have rented more than 4 million square feet of Los Angeles County office space in the last three years, real estate brokerage CBRE said, a bonanza of leases expected to prolong the current positive real estate cycle for landlords.

The explosive growth has lifted economic hot spots in the region such as Hollywood, Culver City and Playa Vista as their biggest players expand and smaller businesses seeking their favor hasten to be near them.

Skyscrapers in downtown L.A.’s financial district, Century City and other time-honored office markets still hold sway among old-school stalwarts such as law offices and financial firms, but the big newcomers are planting their flags elsewhere in unconventional structures that bring to mind cloistered college campuses or gated movie studios.

Entertainment and tech folks typically turn their backs on the imposing towers that signaled prosperity and power in the 20th century, Los Angeles office developer Drew Planting said.

“Not this generation, not this business to be cooped up in a high-rise all day,” he said. “It’s a very different culture.”

New-line companies are competing for engineers and other talented workers in high demand, Planting said, and typically prefer to operate in large-scale facilities where they can foster their own society.

“You can have a commissary, child care, health and wellness facilities,” he said. “You can create support systems for people so they can lead a pretty normal life while working,” often for long hours.

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Real estate developers are performing radical makeovers on old buildings such as the Westside Pavilion and creating new ones notably different from the previous generation of staid corporate cathedrals in an effort to serve shifting workplace tastes among the creative class. Next-generation offices put a premium on natural light, outdoor decks and other breakout spaces where people can work, meet or kick back away from their desks.

One perhaps surprising trend is the excommunication of escalators, which were long considered luxurious amenities.

“The idea of getting on escalators like you did in the 1950s and ’60s is not happening,” said executive Bert Dezzutti of Brookfield Office Properties. “People desire to move around and be untethered. You’re not using lazy old escalators anymore.”

Brookfield, one of the biggest commercial landlords in the country, is yanking 24 escalators out of California Market Center in the Fashion District of downtown Los Angeles as part of a $170-million makeover intended to convert most of the three-building wholesale showroom center dating to 1963 into an airy urban campus for FAANG-type tenants. (FAANG is an acronym for top-performing tech stocks Facebook, Apple, Amazon, Netflix and Alphabet’s Google.)

Escalators will be replaced with stairways leading to 30-foot-wide open-air indoor bridges that can be used like outdoor decks. Glass curtain walls will be removed from the skin of buildings to create open-air gathering spaces known as loggias that will often connect to rooftop decks.

“These are all interventions in a building’s architecture that we’re trying to integrate into the work environment,” Dezzutti said.

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In Hollywood, glamorous new office complexes are helping transform the once-blighted neighborhood as landlords such as Hudson Pacific Properties Inc. and Kilroy Realty Corp. spend hundreds of millions of dollars building for the resurging entertainment industry led by Netflix.

The Los Gatos media company that distributes movies, television shows and documentaries occupies, or has agreed to move into, about 1.6 million square feet of space and will be the largest tenant in Hollywood, according to CBRE. Ten years ago, Netflix was just beginning to get into online streaming of entertainment.

Netflix, Amazon and other newly crowned entertainment giants declined to talk about their real estate plans, but Hudson Pacific Chief Executive Victor Coleman sees them in the process of establishing real estate enclaves that are intended to last in perpetuity like universities. Netflix is all-in on Hollywood, for example, while Amazon Studios has locked in more than 600,000 square feet so far in Culver City.

Apple Inc., which will soon be creating its own content, and prestige cable channel HBO have also agreed to move into new buildings being erected in Culver City, a historic movie-making town that has seen an economic renaissance in the last decade, enhanced by the Expo Line light rail connecting it to downtown and Santa Monica.

Google is a giant of the Westside, with offices on Howard Hughes’ sprawling former aviation campus in Playa Vista and the planned expansion into 584,000 square feet in the former Westside Pavilion mall that owner Hudson Pacific has renamed One Westside.

In a separate project, developer Planting’s firm GPI Cos. is converting the former Macy’s department store at Westside Pavilion into offices for rent to tech and entertainment tenants that will be called West End.

As the FAANGs and similar big creative players such as video game companies establish their hubs, they’ll attract smaller companies in related businesses that want to serve them, Coleman said.

“The Netflix, Google and Amazons of the world are not going to their service providers,” he said. “Their service providers are going to them.”

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West Hollywood developer David Simon says the providers are legion and propelling office leasing in what he calls the “ecosystems” surrounding the big players.

“One square foot of Netflix creates additional demand. There is a massive multiplier effect that is hard to quantify,” Simon said, but it may be as much as 10 to 1, made up of service providers such as production companies, distributors and writers who want to be near the big players.

He recently founded Bardas Investment Group to buy and renovate or build new facilities for smaller players that will have similar architecture and other design elements and amenities like food service to what the big companies are providing their employees, as they compete for talent.

Simon was formerly with Kilroy Realty, which developed the former Hollywood headquarters for CBS, now known as Columbia Square, where such Viacom cable television networks as MTV, Comedy Central, BET and Spike TV are housed. Kilroy is also building a Hollywood office campus called On Vine that will be completed next year but is already leased to Netflix.

Office growth is also afoot in the San Fernando Valley, where several old-line entertainment industries are based. In April, Warner Bros. announced that it will in 2023 rent two new Frank Gehry-designed office towers fashioned to look like icebergs floating alongside the 134 Freeway in Burbank.

The towers will be built by entertainment industry landlord Jeff Worthe, who is selling Burbank Studios to Warner Bros. as part of a complex $1-billion real estate transaction.

More entertainment industry expansion is coming that will keep developers building the style of facilities the industry favors, he said.

“In general, all of these guys are growing,” Worthe said. “We are all adapting.”

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