Cushman & Wakefield: East Bay, Oakland Office Rents Up Despite Rising Vacancy
The East Bay and Oakland office markets continue to heat up, but increased vacancy rates could be a mild setback. During the last quarter, vacancy rates reached 8.6% compared to 7.4% in the previous three months and 8.2% at the start of the year, according to data from Cushman & Wakefield.
Oakland Central Business District increased vacancy rates to 4% from 2.8%. On the plus side, the East Bay vacancy rates are an improvement from last year’s third quarter of 10.2%.
Cushman & Wakefield regional director, Northwest US research Robert Sammons, above, tells Bisnow the vacancy rate in Oakland climbed last quarter due to a few large blocks of space entering the market. Large spaces included buildings under renovation, such as the former AT&T building at 2150 Webster St, that will help with demand and attract more tenants.
“Oakland, and particularly its CBD, remains space-constrained and these new blocks should be good news for tenants searching for a transit-oriented home in the East Bay,” Robert says.
Total vacancy resulted in a 366k SF net occupancy loss during the quarter, more than offsetting gains made last year. The year-to-date total stands at a negative 127k SF compared to last year’s high of 1.6M SF of net absorption. Demand from San Francisco tenants moving into Oakland has ebbed this year now that there are more options in San Francisco, Cushman & Wakefield reports.
Despite the increased vacancy, asking rents continue to rise, with last quarter's average of $2.79/SF up slightly from $2.69/SF during the second quarter and up 8.6% from $2.57/SF a year ago.
Oakland CBD reached its highest level at $4.07/SF last quarter. Class-A rents in Oakland CBD rose 4.4% last quarter to $4.25/SF. These rents are still “substantially below those of its big brother to the west,” Robert says.
“And while I would stop short in calling Oakland the new Brooklyn,” says Robert, a former 19-year resident of New York City, “it has transformed itself into a vibrant mixed-use transit-oriented community, which should continue to blossom.”
Cushman & Wakefield EVP John H. McManus, above, tells us the East Bay's industrial segment is experiencing the effects of e-commerce, Tesla’s massive Fremont car factory, and serving the needs of a growing and affluent population. Those factors, combined with land constraints and loss of product for other uses have created the “tightest market in decades.”
“The East Bay industrial market continues to be one of the strongest in the country,” John says. “Low vacancy, robust demand and strong capital flows promise solid performance through 2017.”
In Contra Costa and Alameda counties overall inventory as of last quarter was 29M SF with 2.3M SF directly vacant. The biggest hurdle in the East Bay is a lack of construction. Only 269k SF was under construction last quarter, which included a 250k SF life sciences building in Emeryville.
Key lease transactions included the FDA moving into 24k SF in South Alameda, GT Nexus relocating to 24k SF in Oakland City Center, Velodyne Marine relocating to 17k SF in North Alameda and Southern Wine & Spirits moving to 16k SF in Oakland City Center. Among the top sales during the last quarter was TMG Partners’ purchase of 2201 Broadway at $77M, or $401/SF.