The rise of new business sectors is pulling us back to the old cliché concerning the three fundamental rules of real estate: location, location, location. 

When you look at the most expensive office submarkets in Los Angeles you might wonder why firms would choose to locate there when there are so many lower cost alternatives.  Very rarely is more than a few cents per square foot of the rent premium related to the physical attributes of the building and its amenities.  Similarly, only a few cents differentiate the prominent location on a major street with a building located on a secondary artery (on L.A.’s Westside, think Wilshire Blvd. vs. Olympic Blvd.)  It is business synergy and the people behind it that creates a “have-to-be-there” location .  For once, the developers can’t even take credit!

The classic example in Southern California is Silicon Beach, the submarket originally comprised of Santa Monica and Venice.  Due to demand pressures, its borders have since expanded.  Within those boundaries is a culture of adventurous, entrepreneurial creativity that has become a vital jolt of energy to every one of the businesses there.  Thus, you have firms willing to pay nearly double what they would have to pay in, say Westwood, barely 4 miles away. 

I toured a social media app client through Santa Monica recently to look at buildings to lease.  Parking is impossibly scarce, mid-afternoon traffic is mind-numbing (and blood pressure-raising).  But in one building, we crossed paths with another young tech worker.  When she introduced herself to my client and they realized they were big fans of each other’s tech offerings, the connection was palpable.    And the value?  Arguably, priceless.

Sometimes there is a submarket where your business just has to be.  When that is the case, you still need a good real estate broker advocating for you and negotiating aggressively on many fronts.  But the rental rate may not be one of them.