Savills Studley Research Los Angeles Savills Studley Report Los Angeles office sector Q4 2018 SUMMARY Market Highlights LEASING SPIKES Several larger leases boosted quarterly ASKING RENT INCREASES "The last four quarters have brought totals. Quarterly leasing totaled 4.5 msf, Asking rent across the Greater Los Angeles steady demand from tech, media jumping from 3.1 million square feet (msf) in area ended the year averaging $39.01, rising and entertainment firms. Challenged the prior quarter. Tenants have leased 14.2 by 1.8% year-on-year. The average Class A msf in the four most recent quarters. asking rent increased by 3.1% to $42.35. for both talent and space, these expanding sectors continue to AVAILABILITY RATES UP SLIGHTLY SALES DROP fan out to new development and The region’s overall availability rose by Office property sales during the first eleven 40 basis points to 19.7%. The Class A months of 2018 totaled $5.9 billion, a 39% adaptive reuse projects across the availability rate was unchanged, remaining decrease compared to the same period of region." at 18.4%. The Westside's Class A availability 2017. rate fell by 70 basis points to 14.9%, though. Savills Studley Research Savills Studley Report | Los Angeles Tech and Media Push Demand Office-Using Employment Trends Propelled by sustained growth among tech, Millions media and entertainment firms, Greater Los 1.10 6% Angeles’ overall economy and office market continued on a steady path of expansion 4% 1.05 during 2018. Area employment remained 2% in positive territory with 58,000 jobs gained in the last 12 months, a 1.3% increase. 1.00 0% The region added 22,000 office-using jobs -2% (a 3.5% increase) during the same period. 0.95 Both of the local growth rates exceeded -4% national growth rates. 0.90 -6% Los Angeles lost out on the Amazon HQ2 -8% 0.85 stakes, but it has benefitted from expansion -10% by several Fortune 500 companies 2013 2014 2015 2016 2017 2018 2011 2009 2010 2012 (Facebook, Netflix, Amazon Studios). 0.80 -12% L.A. Office Emp. L.A.(% Ann. Change) U.S.(% Ann. Change) Rapid growth among upstarts such as Source: Bureau of Labor Statistics^ ByteDance has supplemented expansion by heavyweights. The region remains a magnet for tech and media companies due to the Availability Rate Trends region’s massive economy and labor pool. Availability Rate Trends Media and Tech Fuel Competition 25% Leasing activity has been steady in Los 22.4% 21.4% Angeles, exceeding 3.0 msf four quarters 22% in a row, and spiking to 4.5 msf in the final quarter of 2018. Steady demand for new properties and creative office space has 18.4% 19% kept leasing brisk. 18.5% As of year-end 2018, Los Angeles had 16% 2.2 msf under construction, 43% pre- leased. Streaming media services, tech 13% companies and coworking firms are taking the larger blocks of space. Netflix pre-leased Class A Class B & C 327,000 sf at Hudson Pacific Properties 10% EPIC development and another 355,000 sf at Kilroy Realty Corporation’s Academy Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 on Vine. Both Hollywood locations will be 100% occupied by Netflix and should be completed by 2020. Asking Rent Trends ($/sf) Rental Rate Trends Not to be outdone by Netflix, social media giant Facebook signed a lease to $50 occupy 260,000 sf at The Brickyard office development in Playa Vista. Over in Beverly $42.35 Hills, events promotor and venue operator, $40 Live Nation, signed a 100,000-sf lease at the recently constructed “The Post” $30.30 $36.71 project. Some foreign tech firms are also $30 making significant inroads in Los Angeles. Bytedance, the billion-dollar Chinese tech startup, laid claim to 118,110 sf at C3 in $20 $24.84 Culver City. Downtown Demand Still Suppressed $10 Activity among banks, law firms and general Class A Class B & C professional business services has been $0 more sporadic. This has kept leasing volume Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 in most of Downtown Los Angeles subdued. 02 Q4 2018 In the last four quarters, only 15 leases over 10,000 sf have been signed by law firms, Availability Rate Comparison Rental Rate Comparison ($/sf) insurance companies and banks. Still, a few firms are deciding that they are long overdue Century City 9.7% Santa Monica $63.18 Central San Fernando Valley 12.3% Beverly Hills/West Hollywood $59.89 for new space. Insurance broker Lockton Hollywood 12.8% Hollywood $56.12 Westside 15.2% Westside $56.07 signed a 70,000-sf lease at the 777 Tower in Westwood/West LA 15.4% Westwood/West LA $54.75 Downtown LA. Lockton will relocate from the Beverly Hills/West Hollywood 16.4% Fox Hills/Marina $52.78 Santa Monica 17.2% Culver City $50.33 Ernst & Young Plaza where they spent the Long Beach 17.2% Century City $49.93 previous 20 years. Santa Clarita Valley 17.2% Miracle Mile $47.67 San Gabriel Valley 17.3% Downtown LA $39.73 San Fernando Valley 17.4% Park Mile $39.68 U.S. Index 17.90% Los Angeles Region $39.01 With leasing activity relatively restrained, Fox Hills/Marina 17.9% Burbank $38.25 availability rates have slowly started to push Pasadena 18.0% Airport $36.28 Burbank 18.1% Wilshire District $35.39 higher. The region’s overall availability rate West San Fernando Valley 18.4% Tri-Cities $34.74 Los Angeles Region 19.7% US Index $34.69 ended 2018 with a rate of 19.7%, up from Mid-Wilshire 20.2% N. Hwd/St. City/Univ City $34.43 18.9% a year ago. Downtown LA continues Tri-Cities 20.2% Pasadena $33.44 Wilshire District 20.8% Glendale $33.20 to have a loftier availability rate than the Glendale 21.1% South Bay Area $32.55 Westside, ending 2018 with a 25.6% rate - Miracle Mile 21.3% Central San Fernando Valley $31.74 South Bay Area 22.5% South Bay $30.86 compared to a 15.2% rate in the Westside. Culver City 23.0% San Fernando Valley $29.77 Park Mile 24.7% Santa Clarita Valley $29.76 South Bay 24.8% Long Beach $29.58 Tenants seeking less than 20,000 sf have N. Hwd/St. City/Univ City 24.9% West San Fernando Valley $28.48 Airport 25.1% San Gabriel Valley $28.43 ample options to consider, particularly in Downtown LA 25.6% Mid-Wilshire $26.77 Downtown. Firms can select from 10.4 msf 0% 5% 10% 15% 20% 25% 30% $0 $15 $30 $45 $60 $75 of available space Downtown, 25.4% of the region's 40.9 msf of availability within the next 12 months. Rent in most buildings is Major Transactions generally more than 20% below comparable Tenant Sq Feet Address Market Area Westside properties. Rent growth has been Netflix 327,900 5901 W Sunset Blvd Hollywood very limited in the older and traditional Netflix 183,000 1355 Vine St Hollywood office towers, and typically hovers in the Netflix 159,000 1375 Vine St Hollywood mid-$40/sf raange. The newest building in Downtown, the Wilshire Grand tower, tops Facebook 123,574 12105 W Waterfront Dr Fox Hills/Marina out at $52 psf. Facebook 122,000 12126 W Waterfront Dr Fox Hills/Marina Bytedance 118,000 5800 Bristol Pky Fox Hills/Marina Arts District Shows Strength Technicolor 114,500 6040 W Sunset Blvd Hollywood Live Nation 100,000 325 N Maple Dr Beverly Hills/West Hollywood The strongest demand Downtown continues Chubb Insurance 77,450 555 S Flower St Downtown LA to be in its rapidly expanding creative office Lockton Companies 72,127 777 S Figueroa St Downtown LA space sector. In 2018, Honey Science Sum of Leases 1,397,551 Corporation and Spotify made major moves into the Arts District. Arizona State University's leasing of the former Herald Investors Shift Focus 9,000-sf private landscaped terraces is Examiner building was also a big step located in the heart of Silicon’s Beach forward. Rents in creative buildings in the Investment activity in Los Angeles has been tech hub. Redwood Partners, based out Arts District are pushing north of $60/sf, quite strong in the last two years. Investors of Orange County, purchased The Hub for this still about 10% below rent for creative remain attracted to Los Angeles. Rising $60.5 million (287.51/sf). The 210,000-sf office buildings on the Westside. Two interest rates continue to put pressure on creative office campus located in Long additional buildings 700 South Flower (The the cost of debt. Many of the top creative Beach, was 88% leased at the time of sale. Bloc) and 145 South Spring (the former LA loft/office buildings in the Westside and Arts Times Building) have had success targeting District changed hands in 2016 and 2017. In Looking Forward creative office space users. Rent in these turn, investors have turned their attention to buildings remain on the lower end of the campus-style office properties. The best-in- Area logistics/distribution markets have spectrum, ranging from $40 to $45 psf. class complexes command higher pricing been another bright spot for the region. than many traditional office buildings. Most Lingering trade challenges with China could Parking rates are an added cost that recently, Hackman Capital finalized the potentially spell trouble for this sector. Los can be a serious differentiator between purchase of CBS’ Television City campus for Angeles, like other markets, with a strong buildings.