Bisnow online real estate news Los Angeles, CA March 14, 2016 Exclusive Q&A: Talks Silicon Beach And Its Future Mar 14, 2016 Karen Jordan, Bisnow, LA Avison Young's has nearly 25 years of experience in real estate. Bisnow caught up with Randy to talk about his work, trends in Silicon Beach and why the area is booming. Randy is among the all-star panelists at Bisnow's Future of Silicon Beach event on March 22 at The Gallery.
Bisnow: Can you summarize the evolution of Silicon Beach? : I began working in the Santa Monica commercial real estate market in 1989. (Randy is pictured above in the Santa Monica office of his client, GoodRX Inc.) The Third Street Promenade had just gone through its redevelopment process and downtown Santa Monica was not yet the world-renowned shopping and entertainment destination it is today. Santa Monica is the place where Silicon Beach initially took root. When the downtown Santa Monica office market picked up around the time of the first tech boom in the late '90s, the majority of existing office spaces had been designed for traditional uses, with a blend of 80% private offices and 20% open workspace. At that time, spaces were frequently gutted and converted to a blend of 20% private offices and 80% open workspace the typical ratio for a tech company. By the early 2000s, outdated offices had been revamped into creative spaces, and landlords had significantly enhanced building amenities to attract tech tenants. This transformation was largely taking place in the downtown grid, as well as larger blocks of space in projects such as Colorado Center in East Santa Monica. So, even as the first dot-com bubble burst, the spaces had already been transformed. As a result, when the most recent tech wave started up, creative space options were available for new tenants, and capital improvements to those spaces have not been very significant. Bisnow: When did Silicon Beach first start? : Around 1999 was when the first tech wave really hit. The Promenade was pumping at that point, so downtown Santa Monica became an attractive location for these businesses. Over the previous decade, big-brand retail shops and restaurants had moved into the area, contributing to the establishment of downtown Santa Monica as a bustling, destination business center. You had the beach, hotels and movie theaters people liked to have within walking distance. In addition to that first surge of tech companies flooding the office market, the downtown area attracted a broad range of tenants, from advertising firms to law firms to entertainment firms. As tenants grew both in number and size, Silicon Beach grew and spread south along the coast to Venice, Playa and Marina del Rey, and inland to East Santa Monica and Culver City. (Randy is shown below with his daughter, Lauren, on vacation last summer in Lake Como, Italy.)
Bisnow: What created Silicon Beach? : A lot of hard work by many entrepreneurial people. Tech, media and entertainment companies recognized that being strategically headquartered in an area with a pedestrian-orientated vibe, such as New York City, was essential to attracting and retaining the best talent. Consequently, downtown Santa Monica has remained the hottest part of Silicon Beach. The evolution of Silicon Beach was also facilitated by landlords who took the risk to build out their spaces to suit these creative tech startup users. As tech startups inundated the market during the most recent tech wave, that risk paid off for those landlords as they were able to more easily attract creative tenants to fill their spaces. Another important reason the downtown area became the hub for Silicon Beach startups is that there are a lot of boutique buildings mixed in with the larger Class-A office buildings. This mix allows for a wide range of space sizes ranging from 5k to 25k SF that can better suit the needs of startup tenants than the larger campuses. Bisnow: Are rental rates in downtown Santa Monica causing companies to look elsewhere?
: I believe there is a bit of a misconception out there in this idea that companies are leaving downtown Santa Monica because of higher rental rates. Companies are leaving only because they ve outgrown the area. There is really no magic number regarding how big a company has to become to outgrow downtown Santa Monica, but in my experience 80k SF is the tipping point. Companies are going to fight to stay here as long as they can, and brokers are going to fight for certain clients to stay as well. It can be challenging for these expanding users to find adequate space because the market is already tight. They outgrow downtown Santa Monica. At the same time, as some of these companies grow and move, more product becomes available on the sublease market, creating space options with more attractive economics for companies in their ramp-up stage to grow and expand. Bisnow: What are some of your recent deals? : I recently completed an office deal for GoodRx, which leased a spectacular creative space at 233 Wilshire, a building owned by Equity Office Properties. The company moved out of the Clock Tower, located two blocks away at 225 Santa Monica Blvd. GoodRx is a great example of a company that quickly outgrew its space and was still able to remain in downtown Santa Monica. I m also negotiating a couple of deals for GumGum in two different locations in Silicon Beach for approximately 25k to 30k SF. There s another example of a company that started
in downtown Santa Monica and has stayed in downtown Santa Monica. I did my first deal for GumGum in 2009, when the company had six people occupying 1,500 SF. GumGum currently occupies two full floors in the Clock Tower approximately 9,500 SF in total. The company has evaluated potential moves outside downtown Santa Monica to other great areas like East Santa Monica, Culver City and Playa Vista, but there are still viable options for staying here so why leave? Over the last few months, a lot of sublease spaces hit the market, resulting in more opportunities for this type of tenant. As a broker, when representing a rapidly growing client like GumGum, it is important to have the landlords and sub-landlords all competing to lock down the deal. Bisnow: When you first moved to Santa Monica, did you foresee the popularity of Silicon Beach? : From a market perspective, I could definitely see an area that would eventually become fantastic. All the infrastructure was in place, and that s what really drew my focus to this market. Santa Monica had the potential to become one of the liveliest centers in Los Angeles because of its location and local amenities. Upper echelon executives living in Malibu, Pacific Palisades or Brentwood could easily commute to Santa Monica, but I also understood that the area in general could accommodate a range of income levels because it had a good amount of rent control. Bisnow: What do you see happening in the future in Silicon Beach? : There will be an overall market correction. Venture capital firms will be increasingly selective clamping down and thinning the herd as far as which companies will receive funding. The impact that this will have on the commercial real estate market won t be anything like the first dot-com bust in 2000. In general, rental rates have spiked so much over the last 24 months and will need to adjust down by about 10% to 15%. The sublease market will continue to expand this is a positive sign of successful companies outgrowing certain areas of Silicon Beach. Additionally, over the next five years, I expect to see Downtown LA and the greater Los Angeles area become further integrated with the Silicon Beach market. Bisnow: What's your favorite thing to do when you're not working? : Spending time with my family. (Randy's pictured above in Milan, Italy, with his children, Ashley, Dillon and Lauren.) To hear more from Randy and our other panelists, join us at Bisnow's The Future of Silicon Beach event March 22 at The Gallery in Santa Monica. Sign up here!