Oakland: Finally Where (Almost) Everybody Wants To Be
Oakland has shifted from a city where it was hard to draw in capital just a few short years ago to one where both residents and companies are eager to secure an urban lifestyle, our panelists told around 550 commercial real estate pros at our Oakland State of the Market event this week.
CBRE SVP Mike Keely said it's about synergy—office, residential and retail. You can't attract jobs without a place for employees to live or eat, he said. Mike's been in Oakland since 1987.
Three or four years ago, a company that moved its offices from San Francisco to Oakland to save on rent would go back to San Francisco if the rent difference narrowed, Mike said. Now, however, people are living and staying in Oakland.
Oakland offices have a shocking 3.5% vacancy, Mike said.
Here'e Mike speaking with Lane Partners principal Drew Haydel. A lot of tenants first come to Oakland looking for value, Drew said. But when they get there, those companies see the amenities and realize a lot of employees already live in the East Bay, which has its own tremendous pool of talent to draw from, he said.
Lane Partners' big deal last year was Uber's purchase of Uptown Station, a project now fully underway. Drew said the most dramatic part of the project—cutting through floors to create a central atrium—just reached the ground floor. Tenant improvements start in April, with Uber starting to move in during Q2 2017 and the 50k SF of retail and the grand opening slated for Q3.
Now Drew's looking for a big tenant that wants a couple of hundred thousand square feet. (Lane Partners is working to develop the 2100 block of Telegraph Avenue, which will add an additional 700k SF of office space).
Ellis Partners partner Jason Morehouse (right, with Drew) said it will be interesting in the next year to see which projects break ground. Many developments are on the razor's-edge of profitability, he said, so it remains to be seen how the economy and capitalization affects the development of those sites.
There's a Catch-22 of not having enough fast-growing tenants to build new space, but not having the space to attract those same tenants, he said. That's something that will need to be resolved.
Jason said the city's introduction of area and specific plans lays the groundwork needed to help projects move ahead. The national trend of workers and residents wanting an immediate urban environment is a good fit for Oakland, he said.
Ellis Partners' plans for the 180 Grand office building include finding ways to make the building better interface with the street. Jason said they're trying to “reweave them into the urban fabric” by ripping out some of the barriers to the building and installing a new plaza.
Harvest Properties partner Awais Mughal said the more time he spends in Oakland, the more he thinks it is a great place to have and grow a business. That's Awais, center, with CBRE's Mike Keely and Grant Jones.
Awais recalls buying the 555 City Center building in 2013. At the time, there was an enormous disparity in rents between San Francisco and Oakland, which presented opportunity. But Awais said there also was a fundamental change occurring around who wanted to be in Oakland and why.
It gave him confidence in the Oakland market for the long term. Confidence has built among investors as well. In 2013, it was difficult to get institutional capital to take a chance on Oakland, Awais said. Now capital is looking at Oakland with fresh eyes, he said.
Awais anecdotally explained Oakland's current appeal by recalling a discussion with a local bar owner. The uptown bar has two happy hours—one when Oakland workers leave their jobs at 5pm, and another around 7pm, when all the tech workers coming home from San Francisco stop at the bar.
On the topic of brews, Eric F. Anderson CEO Kristin Anderson said her firm is working with two craft breweries in Oakland. That's Kristin, left, with her mother, Leona Anderson. Eric F. Anderson is a third-generation, woman-owned business.
The city has done a good job being attractive to small businesses that want Oakland's culture and brand, Kristin said. Those companies also have benefited from the city helping them find grant money to help with construction costs, she said.
Construction costs are a big challenge, as is finding labor in a booming market, she said.
Oakland has changed a lot since Orton Development principal Nick Orton worked on one of his first projects in the city, a building bought in 2010. That's Nick, right, answering a question from Smart Growth CEO Christopher Porto, our moderator.
Roughly five years ago, Nick said downtown Oakland looked desolate when 5pm rolled around and workers went home. No matter what happens in the next market cycle, Nick's pretty sure Oakland won't return to where it was in 2010 —too much has come in to round out the downtown.
Oakland still has its challenges, such as crime, but some of that can be mitigated by designing great public spaces or a little creative thinking, Nick said. He mentioned working with local retailer Oaklandish, which wanted to avoid a metal grate security door over its storefront at 1444 Broadway. Orton Development found glass that was break- and scratch-proof, which made a statement to the community.
One challenge that comes with Oakland's grittiness (or, to use Mayor Libby Schaaf 's word, "spiciness") is its aging infrastructure, said Sandis VP Jeff Setera (above right, with Terence Lee of TLee Design).
The city's older buildings and infrastructure limit what can be done and can carry a lot of cost when bringing a building up to code, Jeff said. When the codes change, that makes it an even greater hurdle, he said.
Oakland is all about demand, said Polaris Pacific partner Paul Zeger (above right, with fellow panelist Thompson Dorfman's Bruce Dorfman). The city is centrally located with great transit, infrastructure and the diversity that Millennials are looking for (and the urban experience many Baby Boomers want), Paul said. The challenge right now is rising construction costs that are eating up developers' potential profits, he said.