Los Angeles
The entertainment industry is one of the major drivers of office leasing activity in Los Angeles. The sector accounts for nearly 7% of regional office space, a total of 18 million square feet and an additional 5 million square feet of production space, and these tenants signed 6 million square feet of new leases in 2018 alone, according to research from CBRE. However, the pandemic has brought the industry to an abrupt halt. Media and entertainment companies shed 6,200 jobs in March due to stay-at-home guidelines.
"Media and entertainment firms have been expanding rapidly," Eric Willett, director of research and thought leadership at CBRE, tells GlobeSt.com. "COVID-19 looks likely to slow that pace as firms adjust to the new temporary reality with production halted and movie theaters shuttered. With more people seeking out content online, though, expansion by streaming services may prove to be the silver lining."
This silver lining scenario isn't unfounded. At-home streaming and content consumption is up because more people are staying home. Streaming companies already occupy 3.9 million square feet of space, nearly a quarter of the total entertainment market in Los Angeles. Expansion in this market segment could help to offset loss.
Entertainment companies are concentrated in West L.A., the Tri-Cities and Hollywood. In fact, Hollywood has had a recent resurgence in the last few years, catalyzed by companies like Netflix and Viacom moving in. Now, these neighborhoods will be the most impacted by the market change. "It remains too early to say how exactly the pandemic will impact patterns in office-usage," Willett says. "In the near-term tenants across the region are looking at ways to temporarily adapt space to comply with expert health guidance, including social-distancing and cleaning protocols. Media organizations have been at the forefront of thinking through how to safely resume production and other activities."
Again, there is a silver lining for owners in these submarkets, and again, it is streaming companies. "Long the home of the traditional movie studios, these submarkets have also emerged in recent years as key hubs for streaming services," says Willett says.
Optimism aside, no owner will be exempt from the economic impact of the pandemic, which will include declining rents and occupancy. "Over the next few months we expect office rents and property values to decline and vacancy to increase," says Willett, adding, again, some good news. "Modeling from CBRE's Econometric Advisors anticipates an economic rebound in the second half of the year as the businesses resume operations, which will result in renewed demand for office space."
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Kelsi Maree Borland
