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Much of Snapchat Disappearing from Venice

Messenging App is Putting 163,000 SF Up for Sublease, Consolidating in Santa Monica
February 27, 2018
Gingerbread Court at 517 Ocean Front Walk is one of 14 office spaces Snap Inc. has listed for sublease in Venice Beach, CA.

The company behind popular messaging app Snapchat has put 14 of its Venice Beach office locations totaling 163,000 square feet up for sublease as it moves to consolidate those offices into Santa Monica.

Snap Inc. was founded in Venice and for years has operated as a company without an official centralized headquarters. It has leased or bought a number of small buildings to accommodate its rapid expansion in the area, not without some controversy.

But after leasing more than 300,000 square feet of office space at Blackstone Group’s Santa Monica Business Park and going public last year, the company appears ready to change course and create a more traditional, campus-like environment.

Now, Snap is listing more than half the space it occupies in numerous buildings across Venice for sublease through a brokerage team of Los Angeles-based Industry Partners and Jones Lang LaSalle, Inc. (JLL).

It may seem like a lot of empty space to hit the small beachside city, but the news may prove to be a boon for smaller tech companies that have been trying to break into the sought-after Venice office market. Much of the space has been nearly fully occupied by Snap, Brooklyn-based Vice Media and Zefr Inc., a video advertising company which recently moved to Marina del Rey.

"The reality is, over the last few years, most small tenants just have shied away from Venice because Snapchat was the 800-pound gorilla grabbing it up and outbidding anybody," said Dave Toomey, principal at Cresa who specializes in tech and media company tenant representation on the Westside.

"It opens the space to other tenants. It could make Venice a healthier market because it’s not dependent on two or three big users," added Toomey. "It’ll be much more diverse."

The 14 spaces Snap has listed for sublease range from 2,800 square feet in a historic building on hip shopping street Abbot Kinney Boulevard to 44,887 square feet in a low-rise glass building known as a Thornton Lofts on the Venice Boardwalk. The terms range from two years to six years, at rates ranging from $4 to $11 per square foot monthly.

The majority of the sublet space, about 93,000 square feet, is on Venice Boardwalk, a funky beachside stretch of pedestrian and bike paths lined with attractions, shops, restaurants, artists and medical marijuana dispensaries. It includes the Thornton Lofts at 619-701 Ocean Front Walk, more than 11,000 square feet in a "restaurant-ready" space in the brick-lined shopping courtyard known as Gingerbread Court, as well as the 29,596-square-foot low-rise property at 909-913 Ocean Front Walk.

Snap is listing about 28,000 square feet of office and potential retail space among three buildings on Abbot Kinney, where its asking rates are a jaw-dropping $11 per square foot. It also has two neighboring buildings on Brooks Avenue comprising 6,000- and 5,000-square-foot spaces for sublease.

Also listed are smaller properties ranging from 3,000 to 5,400 square feet in buildings on Main Street and Windward Avenue, just steps from the boardwalk and iconic Venice sign.

Blake Olson, a broker at Avison Young Inc. active in Westside deals, said he already has tenants lining up to tour the spaces.

"This is a resurgence of Venice inventory," Olson said. "It’s been so hard for companies wanting to be here. I can’t even tell you how many times I’ve had tech users tell me, ‘I know Venice is expensive but I love it - the walkability, the beach, the lifestyle.’ I’ve had clients searching for nine-plus months for larger chunks of space. It’s really hard in Venice to find much over 5,000 square feet."

Venice and neighboring Santa Monica are hotbeds of entrepreneurial, venture capitalist and tech incubator activity such as Amplify LA, which are spinning off new companies at a rapid pace. Snap’s smaller spaces, many of which are already designed for tech companies, may be prime real estate for a number of maturing start-ups and tech companies in the area with short-term leasing needs, brokers say.

Take a recent deal by Eaze, for example. The new medical marijuana delivery app signed a two-year deal for about 15,000 square feet at Venice’s 67 Windward Ave. just last month.

"That space went on market and Eaze snapped it up quickly," said Randy Starr, a principal at Avison Young who has already toured tenants through some of Snap’s space. "A similar type of company will lease Snap’s space. One of the biggest challenges is going to be the larger spaces. They are not going to have one company take all those spaces. They’ll end up having six to seven deals to clear the field and they may need to be slightly aggressive on pricing. But I’ll be surprised if they don’t have 75% of it unloaded in the next six months."

In the meantime, Snap has already begun moving its employees from Venice to Santa Monica.

It has a 10-year lease for 300,000 square feet at Blackstone Group’s 1 million-square-foot Santa Monica Business Park, which is currently being shopped for sale, with an option to lease at least an additional 100,000 square feet. When Snap signed the deal with Blackstone last year, it was the largest real estate lease the company had made in its short history.

Snap also has a six-year lease for 79,000 square feet of office and hangar space at 2772 and 2800 Donald Douglas Loop North in the Santa Monica Airport nearby.

Snap Chief Executive Evan Spiegel, who founded the company in Venice, still occupies a 6,000-square-foot building on Market Street but he doesn’t consider it to be the company’s official headquarters. The company’s sprawling real estate play has been a widely watched experiment by executives and analysts alike in bucking historical trends favoring a central corporate headquarters.

But last year, company officials signaled that the experiment may be coming to an end if the company was going to continue to expand.

"This diffuse structure may prevent us from fostering positive employee morale and encouraging social interaction among our employees and different business units. Moreover, because our office buildings are dispersed throughout the area, we may be unable to adequately oversee employees and business functions. If we cannot compensate for these and other issues caused by this geographically dispersed office structure, we may lose employees, which could seriously harm our business," the company disclosed in a filing with the Securities and Exchange Commission ahead of its IPO last year.

Snapchat's brokers at Industry Partners declined comment and JLL and Snap could not be reached.

Jacquelyn Ryan, Los Angeles Market Reporter  CoStar Group   

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