LOS ANGELES—Investors are now looking to convert traditional mid-rise office space in West Los Angeles to creative office, according to Aleks Trifunovic, a principal in Lee & Associates' West Los Angeles office. This next stage in the evolution of the creative office market is driven by extremely high demand for quality creative office space and the supply constrained market in West Los Angeles, namely in Santa Monica, Culver City and Playa Vista. 

“West Los Angeles within the creative office realm has been a pioneer, and it continues to be with the transition of traditional office buildings that investors are now looking to buy and convert to hybrid creative space,” Trifunovic tells GlobeSt.com in an exclusive interview. “There is positive absorption for most of the large floor plates for creative office. Tenants today don't want to go into a four-story office building with drop ceilings. They want polished concrete floors; they want it to be hip.”

As many know, developers originally converted older industrial product into creative office space, and then moved onto 1950s office space for conversion. Now, investors are looking for 1970s mid-rise office properties to convert into creative office space. Next, Trifunovic expects they will move onto the outdated 1980s traditional product. When that happens, high vacancy markets, like the Fox Hills neighborhood of Culver City, will improve. “What happened historically is people wanted 1950s, bow truss, red brick buildings to convert, and we have run out of those. Now investors are looking for different opportunities and have moved on to the 1970s buildings. Fox Hills was developed in the 80s, so I think that will be the next push,” he says.

The supply constraint for creative office in the West Los Angeles market has been a significant burden for tenants and brokers representing tenants. “You are looking at multiple offers on good creative space with few backups,” says Trifunovic. “There is a that tenant I know in the marketplace that was looking for about 10,000 square feet. They reached agreement 3 different times and were still beat out by other tenants. It is a very competitive market from that standpoint.” Some of those tenants are moving out of the area. Viacom, for example is moving from a creative office-type building in Santa Monica to a true creative space at Columbia Square in Hollywood. While Trifunovic says they haven't seen much migration to other markets, he does say that El Segundo is an alternative, and some developers are banking on it with several creative office projects currently underway in that market.

Although much of the creative office development has been redevelopment, Playa Vista has some of the first ground-up creative office spaces in the pipeline from Tishman Speyer. Once those buildings come online, Trifunovic expects them to lease up pretty quickly. Additionally, some more traditional office owners are slowly converting office space into creative office as leases roll because the demand and absorption for creative office is so much higher than that of traditional office space. “With creative office, you do get higher rental rates, but really it is the turn that makes it attractive for landlords,” says Trifunovic. “Your vacancy between tenants is shorter because demand is so much higher for that product type and the capital investment is smaller.”

The strength in the creative office space in West Los Angeles won't die down any time soon. “I expect the market to continue to have positive absorption and the market will continue to become tighter,” says Trifunovic. “There isn't very much new development, but any new development to come online will have significant activity due to the lack of space that is available.”