Office Leasing Remains Robust in California’s Mixed-Use Projects

by Jeff Shaw

The pandemic has done a lot to the office sector, not the least of which is convince employees they don’t need to sit in a cubicle eight hours a day, five days a week. Turns out, unsurprisingly, many people appreciate the freedom and flexibility that comes with working from home. 

The average U.S. office vacancy rate was 18.6 percent in the first quarter of 2023, according to Cushman & Wakefield. This was 5.9 percentage points higher than fourth-quarter 2019. Three California regions are also listed on the “Bottom 10 Performers of 2022” list (according to vacancy rate) put out by the National Association of Realtors. These include San Rafael (19.3 percent vacancy), San Francisco (16.4 percent) and Los Angeles (14.4 percent).

Yet, leases are still getting signed, particularly at urban mixed-use projects throughout the state. Sean Slater, senior principal in RDC’s San Diego office, thinks this type of environment is a no-brainer for companies looking to bring employees back to the office. 

“Office workers want choice, especially with the current work-from-anywhere trend,” he says. “For a long time, suburban office parks have lacked choice of food and beverage, a diverse population of tenants, and a meaningful connection to their community. Today, new ground-up office is being constructed with retail and entertainment uses integrated into the development.”

Matt Moran, project director and creative office environment lead at Project Management Advisors, notes that it’s not just choice but convenience that’s driving these companies into high-energy, mixed-use projects. 

“The objective has shifted to how they can attract employees back to the office as opposed to passively providing a space to work,” he says. “The convenience of being in one place with a variety of different amenity options is what is desired. It should be a one-stop shop where they can work and play and take care of everyday needs.” 

These needs include services like daycare, groceries, mailing, dry cleaning, hair care, food, and health and fitness.

The Row DTLA Raises Occupancy

One mixed-use project experiencing consistent office leasing activity is the ROW DTLA. Located on the edge of the expanding Arts District in Downtown Los Angeles, ROW DTLA is a 32-acre collective composed of award-winning restaurants, boutique retail shops, creative office workspaces, outdoor green spaces, art galleries, event venues and an abundance of amenities amid nearly 2 million square feet of space. 

The mixed-use asset has secured more than 300,000 square feet of office leases since January 2022. The latest include global mass media company Condé Nast, which will be relocating, and law firm Umhofer, Mitchell & King LLP, which took 4,500 square feet. Both leases were announced in April. 

Other office tenants to nab space at the ROW DTLA over the past 16 months include Virgin Hyperloop (49,862 square feet), Revolve (48,400 square feet), HOK Group Inc. (25,000 square feet), Joybird (20,000 square feet), Lendistry (12,400 square feet), BNBuilders (6,100 square feet), Garrett Leight (5,400 square feet), Doc Martens (5,400 square feet) and Actum (4,800 square feet).

“As tenants of all sizes from a variety of industries look at how to entice their employees back to the office post-COVID, ROW DTLA continues to offer a dynamic solution,” says Jaclyn Ward, managing director at JLL. Ward oversees leasing at the property, along with Cassie Trosclair and Sarah Hancock. “The vibrancy of the district’s amenities and co-tenancies, the multitude of outdoor and event spaces and ample parking, the safety of officing in a city within a city and the opportunity to mitigate upfront capital with our pre-built spaces, are all resounding themes from each new tenant we’ve attracted.”

Tenant amenities include a state-of-the-art, tenant-only athletic club; dining options like Pizzeria Bianco, Hayato, Go Get Em Tiger, Kato and Rappahannock, and a variety of health and wellness, consumer brands, design and gift shops. There is also a Rooftop Cinema Club that offers a sunset movie with a view of the skyline.

Slater believes Atlas Capital Group, owner of the ROW DTLA, has done a great job ensuring the offerings speak to what tenants want, rather than flashy bells and whistles.

“Landlords need to create a recognizable scene, replete with various dining choices, after-work happy hours, unprogrammed open spaces as well as community-focused programming,” he says. “Buzzy amenities are less important than retail that serves useful daily needs.”

These conveniences have been missing for far too long in office projects, Slater notes, which has caused employers to step up their game if they’re to attract and retain the best and brightest.

“Virtually all office sectors are seeking mixed-use adjacent or integrated retail lease space,” he continues. “It’s not the size or scale of the office product as much as the presence of retail and other amenities — and specifically, physical space dedicated to socialization.”

Companies Embrace The Convenient Environment

Naturally, this trend is happening outside of Downtown Los Angeles as well. The Culver Steps is a best-in-class, 120,000-square-foot mixed-use development that features 80,000 square feet of creative office space and 42,000 square feet of retail and restaurant space in Culver City.

Amazon Studios rents out the office space, which enjoys a prime location near 11 curated retail tenants in the food and beverage, beauty and wellness categories. These include Sephora, Mendocino Farms, Philz Coffee, Pop’s Bagels, Afuri Ramen + Dumpling, Yunomi Handroll, Salt & Straw, CorePower Yoga and Formula Fig. 

High-end organic grocer Erewhon opened at the Culver Steps in March, while Laurel Grill, a new concept by West Hollywood restauranteur Dean McKillen, will open soon. This new lease brought the Hackman Capital Partners’ project to full occupancy. 

Lee Shapiro and Christine Deschaine of Kennedy Wilson Brokerage represented the landlord, an affiliate of Hackman Capital, in the transactions. Shapiro notes his team received more than 150 offers for the 42,000 square feet of total retail and restaurant space available.

Spaces are also in demand at Ivy Station, a nearby 500,000-square-foot mixed-use development that opened in mid-2021. The 240,000-square-foot office component is leased to WarnerMedia. The space now houses the company’s West Coast offices for HBO, Cinemax, TNT, tbs and truTV. 

Though many office tenants appreciate the mixed-use environment, Moran notes it’s particularly in demand for a certain cohort. 

“The more creative businesses, including tech and entertainment, and the younger generation that thrives in inspirational settings are driving this direction,” he says.

Slater clarifies that it wasn’t always this way. Yes, creative employees have long enjoyed the luxury and convenience of nearby amenities, but employers weren’t necessarily keen to share their space with the public. This lead to more of the enclosed campus style.

“In the past, intellectual property issues have kept biotech, content creation and other high confidentiality-sensitive users out of mixed-use projects,” he adds. 

He points to Pixar and Apple as past examples of this. 

“Pixar Studios in Emeryville famously walled off its compound with an internal, employees-only food court, recreation, open space and offices that precluded their wildly creative folks from energizing the surrounding area,” Slater continues. “Apple created an entire world inside its Apple Park in Cupertino to substitute for actual mixing of the public and their employees. But that trend has been changing, and leaning toward more openness.”

He adds that the Campus at Horton, the 1-million-square-foot reimagined mixed-use creation of Horton Plaza mall, and the RaDD district will include biotech and lab space in addition to retail and dining components. Both spaces are being developed in Downtown San Diego, and both will be open to the public. 

In fact, even seemingly private offices are trying to create an energized space for their employees by letting the masses in. This includes Twitter, which repurposed an apparel and furniture mart on San Francisco’s Market Street. The space includes a food hall and other amenities available to everyone. 

The “open” concept is one Slater encourages for office tenants. 

“Open the doors,” he advises. “Eliminate barriers and move the control points for the sensitive departments as far from the public realm as possible. Various levels of security can be maintained through technological methods like access cards for elevators, limited access to certain floors of any particular building and constant monitoring of their facilities.”

Moran also has a few tips for mixed-use developers hoping to attract California’s hottest office tenants. 

“Provide ample parking or public transit options in proximity and adjacent to multiple housing options – affordable, market-rate and luxury for the executives,” he adds. “Focus on creating a campus environment with food and beverage options, particularly those that are health and wellness focused. Internally, landlords should provide flexibility for a variety of amenities, such as gathering spaces, wellness rooms, technology-rich spaces, food and beverage options and open floor plates.”

These tips not only help secure office tenants, Slater notes, but retain them as well. 

“By creating convenience and openness, office tenants can realize real-time savings for their staff, thus improving leasing prospects and retention of tenants,” he says.

— Nellie Day

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