Oakland’s Tight Industrial Market Is Pushing Users, Developers Into Ancillary Markets
The Bay Area’s industrial market is hot. Rents are at all-time highs. Vacancy is low and warehouses aren’t being built fast enough. Oakland is the third-most-expensive industrial and logistics market in the country with rents growing 14% in the 12 months ending in March, according to a CBRE report.
At the same time, land prices in ideal locales such as Oakland and Fremont are rising alongside the cost to build, making it more difficult to add developments where users want to be.
This has resulted in new opportunities in smaller markets such as Richmond, Tracy and Livermore, where there is more affordable land and more modern facilities. It also has developers and investors expanding their definition of an infill market, which typically is within an urban core.
“The key question is what is an infill market? Tracy? Richmond? Is it limited to Oakland or anywhere on the 880 corridor? Everyone is grappling right now with that,” CBRE Senior Vice President Bob Ferraro said.
Tenant demand, investment and development are among the topics to be discussed during Bisnow’s Bay Area Industrial Summit in October.
More than 35 new buildings spanning 7.5M SF are slated to go up in the next few years, including buildings planned or in the works for Fremont, Richmond and San Leandro, Ferraro said.
New buildings in Richmond are close to rail and Richmond Parkway, which is the main thoroughfare to interstates 580 and 80. Even Richmond is tight with about 500K SF available and a vacancy rate of 2.9% as of the second quarter, according to CBRE’s latest MarketView report.
In addition to new markets, the biggest development opportunity could be redeveloping obsolete warehouses in Oakland and the Bay Area to meet modern user needs.
About 5.9M SF of modern warehouse space was built in the last 10 years, which accounts for 5.7% of the total warehouse stock in the Oakland market, according to a report from CBRE. Despite the additional inventory of new warehouses since 2008, which are three times as large, new warehouses only account for less than 2% of total buildings.
The needs of modern logistics, warehouse and advanced manufacturing are helping drive ongoing demand. Not only are users demanding higher clear heights, but they also want bigger parking lots and more power, which buildings from the 1960s and 1970s lack, Ferraro said.
Strong Leasing Activity Continues
Demand for modern industrial spaces is so high that developers aren’t struggling to fill the new buildings either.
“Most of the buildings are getting leased prior to being completed or right at completion, especially if they are in the zone of Oakland and Fremont,” Ferraro said.
Trammell Crow and Principal Real Estate Developers are redeveloping the former Kraft Heinz plant in San Leandro into an over 553K SF San Leandro Business Center and have already signed a 121K SF lease, according to CBRE’s Q2 Oakland MarketView Report.
Overton Moore is redeveloping a former paper plant into an over 300K SF industrial site and already leased it up to a food manufacturing company. Prologis signed a long-term lease at the Port of Oakland and tore down a World War II military warehouse for a redevelopment that also has been leased, he said.
A lot of the deals over 100K SF that have been completed this year have been for renewals as users look around and realize their best option is to stay put, he said.
Those willing to compromise on clear heights or other features are starting to lease up Class-B buildings. Class-B buildings that have sat on the market for the last six months quickly leased up in recent weeks, Ferraro said.
“Part of the reason is it’s less [expensive] and part of the reason is there are no other choices,” Ferraro said. “The leasing market continues to be very strong.”
Find out more about the Oakland industrial market at Bisnow's Bay Area Industrial Summit on Oct. 25.