Oakland Office Opportunities Lie In City's 'Untapped Potential'
Oakland's office market has opportunities to add value to existing buildings and draw in tenants. That is a boon to the city at a time when tenants are looking for space outside of San Francisco and the Peninsula.
"The opportunity for value-add still exists in Oakland even though the market is searing hot," California Capital & Investment Group CEO Paul Tagami said.
"That to me says 'untapped potential,'" he said. "I think we have runway left, whether we realize it in this cycle or another cycle."
Tagami and Smith were among the speakers at Bisnow's Future of Oakland event Oct. 5. The event was held on the 10th floor of 1330 Broadway, an 18-story, 313K SF building that TMG Partners bought in December 2015.
Since then, the company has renovated the building, bringing in new lobbies and major elevator and building systems improvements. TMG Partners has leased whole floors to Oracle and Arup and has four floors available for lease, according to TMG Partners partner Adam Chall.
The changes in the building reflect the changes in Oakland's office market. Cushman & Wakefield Executive Director John Dolby, who is overseeing leasing for 1330 Broadway, said the building's fully serviced rents have more than doubled from where they likely were less than a decade ago. He said newly remodeled buildings downtown are going to attract better tenants and bigger names.
Interest is pushing out from large companies growing on the Peninsula that have nowhere to go but toward the East Bay, Tagami said. He said his company is now able to pick and choose tenants because there are so many vying for the space.
Transwestern Senior Managing Director Ed Del Beccaro said he expects more back-office jobs to move into Oakland as well as more tech firms, driven in part by the lower cost of living in the city compared to San Francisco.
"We're in the center of the universe for the next couple years," he said.
Smith said much of the office market is propped up by corporate tech companies with inflated valuations. He worries about how sustainable it is for companies to keep paying high rents, particularly if there is a downturn, when some of them have never broken even.
Then there are the challenges for new development.
Permitting came up several times at the event as a specific barrier to doing business in Oakland, with speakers mentioning understaffed departments and delays.
Smith said Citrine Advisors takes the path of least resistance when it comes to permitting, sticking to the last permitted use for its buildings to give it more leeway.
"We can control our destiny a little more," he said.
As office and retail rents have gone up, it has become more difficult for small businesses and nonprofit organizations to occupy space in the city. There has been a matching rise in residential rents. While people are still moving into the city and demanding housing, so much of their earnings goes toward rent that there is less to spend in the community, Tagami said.
Homelessness is another problem. Dolby said homeless encampments are one of the first things people see when they come into the city. The speakers agreed it was something the city must address.
Tagami said there needs to be an affordable market where people can enjoy the full spectrum of opportunity.
"That's the balance that has to be stricken," he said. "It's not just putting numbers into a spreadsheet. We have to grow these businesses, grow these opportunities. If we do that, the market will be stable for a long time to come."