Netflix, once one of the most active office tenants in Hollywood, now is attempting to shrink its greater Los Angeles real estate footprint after layoffs and a decline in subscribers.
The Los Gatos, California-based company has put up roughly 180,000 square feet of office space at 2350 Empire Ave. and 2400 Empire Ave. in Burbank for sublease, according to CoStar data and people familiar with the offering. That’s less than 15% of Netflix’s combined real estate holdings in metropolitan L.A., according to CoStar data. CBRE is marketing the space for the company.
Netflix confirmed the sublease effort, with a spokesperson telling CoStar News in an email that the company regularly evaluates its real estate portfolio “to ensure we are best optimizing our space,” adding that “as a result there are a few properties we aren’t utilizing and are now subletting/terminating lease agreements.”
The space reduction comes after Netflix trimmed staff as it announced it lost 200,000 subscribers in the first quarter and said it expected to lose another 2 million in the second quarter after seeing subscriptions soar during the pandemic’s early months. Netflix laid off 300 people in June after previously laying off 150 workers, according to The New York Times. The company had roughly 11,300 full-time employees as of Dec. 31, according to a Securities and Exchange Commission filing.
The gloomy projections spooked analysts, who have begun to question real estate companies investing in office and soundstage space catering to streaming entertainment businesses. Streaming subscription growth has long been used to justify more content spending, creating a greater need for soundstage, office and production space.
For now, it appears Netflix stands alone in seeing its subscriptions fall. Competitors including Disney, HBO and Paramount Plus have added subscribers in recent months, but there’s a growing fear in Hollywood that a recession is looming, causing some networks to cancel shows they agreed to make, according to a recent report from Bloomberg.
Netflix’s Burbank sublease is one of the largest blocks of sublease space being marketed in greater Los Angeles. Roughly 10 million square feet is available for sublease in the market after the pandemic caused many companies to rethink their physical office needs.
In January, Farmers Insurance revealed it was looking to sublease its roughly 500,000-square-foot headquarters at 6301 and 6303 Owensmouth Ave. in Woodland Hills. In November 2021, DirecTV put up nearly 300,000 square feet of office space for sublease in November at its headquarters in El Segundo at 2200 and 2230 E. Imperial Highway.
“Sublease space has been at record levels since late 2020,” said Ryan Patap, senior director of market analytics for CoStar Group in Los Angeles.
The Burbank office market has a vacancy rate of 7%, below the greater L.A. average of 13.9%, according to CoStar data. The market’s average annual asking rent is $43.52 per square foot, above the greater L.A. average of $41.91 per square foot.
Representatives for CBRE and the landlord, New York-based Prospect Ridge Advisors, did not respond to requests to comment from CoStar News.
*CBRE’s John Zanetos, Chris Penrose, Phil Ruhl and Kelli Snyder are marketing the space for sublease, according to CoStar data.
Author Credit: Jack Witthaus, CoStar