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Outlying Markets Become Stars in Los Angeles' Coworking Blockbuster Expansion

WeWork, Rivals Chase Tenants Seeking Alternatives to Westside, Downtown Parts of the City
October 5, 2018
WeWork occupies half of this 102,570-square-foot office building at 7083 Hollywood Blvd.

The growth of WeWork and its coworking rivals in Los Angeles has been so explosive the firms are spilling out of their strongholds in downtown and the city's Westside into Hollywood and outlying office districts such as El Segundo and Glendale in pursuit of technology and entertainment tenants getting priced out of higher-end office enclaves.

The expansion in Los Angeles mirrors the disruption caused by WeWork and other shared-office providers in New York and other major cities around the country. U.S. office space taken by coworking companies has increased more than 550 percent over the past decade, from about 5 million in 2008, before the advent of the sharing economy, to 32 million square feet occupied to date in 2018, according to CoStar data.

One out of every five leases in Los Angeles over the past two years was signed by a coworking firm, according to CoStar. Coworking space providers, in general, lease office space directly from a landlord and then build it out with shared desks and several common amenities and sublease it to individuals and companies with flexible terms. As the trend has taken off, so have the number of coworking firms opening locations.

Coworking tenants occupied 3.2 million square feet in Los Angeles at midyear, the second-largest footprint in a U.S. city following the 8.5 million square feet occupied in New York City and well ahead of Chicago's 2 million square feet, according to CoStar information. Los Angeles is also the second most-populous U.S. city, after New York and ahead of Chicago.

Reflecting CoStar's national data, coworking tenants have grown by 500 percent in Los Angeles over the past decade, according to real estate brokerage Jones Lang LaSalle. Moreover, the amount of shared-office space is growing annually at a clip of nearly 60 percent, Jones Lang LaSalle said. Fast-growing WeWork, one of the largest global coworking firms, plans to double its number of offices in Los Angeles to 40 locations by the end of next year.

While Westside and downtown Los Angeles have seen the biggest impact, accounting for over half of L.A.'s coworking market share combined, WeWork and its rivals are now opening offices to the south, north and east.

"We're seeing more and more tech and media companies diversifying and taking nodes of office space in different areas like Hollywood and the South Bay to pull in those pools of talent, and the coworking companies are following right along with this corporate strategy," said Peter Belisle, southwest market director based in Jones Lang LaSalle's downtown Los Angeles office.

He added that "as traffic continues to worsen in L.A., these submarkets with lots of multifamily development are becoming more and more attractive in luring younger talent that's not up for spending three hours on the freeway."

With sky-high office lease rates in Westside cities such as Santa Monica, Culver City and Playa Vista, demand is gradually migrating south into cities like El Segundo and Hawthorne, he said. Beach communities to the south like Manhattan Beach and Hermosa Beach are increasingly drawing the interest of creative and media firms, which can't find enough space in or are being priced out of nearby Westside tech enclaves where marquee firms such as Amazon Studios, Facebook and Google have offices.

"There’s actually a great talent pool in South Bay beach cities like Hermosa Beach, where the last thing people want to do is drive one-and-a-half hours to downtown or the Westside," Belisle said.

In August, WeWork announced plans for its first office in El Segundo, leasing 75,000 square feet that is expected to accommodate up to 1,300 workers in Starwood Capital Group's Pacific Corporate Center.

Hollywood and West Hollywood are also emerging as coworking locales, fueled by rising demand from both startup and established entertainment and media companies and a wave of redevelopment bringing new multifamily housing stock, Belisle said.

Upscale coworking facility Neuehouse and Serendipity Labs are among the coworking facilities opened in Hollywood. Meanwhile, WeWork, which has already been popular with a number of the start-up and established firms in the Westside office market in its other locations in Santa Monica and Culver City, in July leased 52,427 square feet in Pacific Design Center’s Green Building in West Hollywood.

WeWork is looking around for space in Glendale, a city about eight miles north of downtown Los Angeles, which along with Burbank, are major centers for U.S. entertainment production, home to huge employers such as DreamWorks and Walt Disney Co.

"It makes sense for coworking companies to increase their presence in Burbank and Glendale, which are rich with ancillary tech and media companies that gravitate toward the large entertainment companies," Belisle said.

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