A record amount of office space hit the market in Oakland as some of the city’s biggest employers opt for the suburbs despite a decline in crime.
Oakland office vacancy nearly tripled from the third quarter of 2019 to Q3 2024, reaching 29.1%, according to a new report by JLL. Hybrid work has had a “destabilizing effect” on the city's office market, JLL Senior Research Director Alexander Quinn said in an email.
Part of that destabilization is the departure of several of the city's staid corporate citizens, like Kaiser Permanente, which decamped to Pleasanton in February 2023, taking 1,200 jobs with it.
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The healthcare giant sold two buildings, 2000 Broadway and 1950 Franklin St.
Another household name, Clorox, listed a floor for sublease at its 1221 Broadway HQ.
It is a tenant's market, Quinn said, with rental rates dropping at buildings throughout the Bay Area, including at some of the higher-profile properties. Those reduced rates aren't likely to tamp vacancy back down in the near term, though.
“We expect it’s going to increase in vacancy next year simply because there are more tenants moving out than moving in,” Quinn said.
That trend is reflected in the city's absorption, which reached a net negative 260K SF in Q3.
Those leases that are being signed, however, reflect the flight to quality playing out in markets across the country. Despite the overall losses, 80% of the leases signed in Q3 were Class-A office space.
“We are seeing activity along 12th Street, including 601 City Center and 1111 Broadway. Overall, these leases are of smaller tenants, including law firms. In addition, we are seeing activity near [Lake Merritt], including demand at Lake Merritt Plaza and 180 Grand Avenue,” Quinn said. “These are upper Tier buildings that continue to see tours.”
Over the long term, Quinn believes Oakland will bounce back for a variety of reasons.
“Crime is down 41% year over year or about 26% relative to the average of the past three years,” Quinn said. “Additional momentum in this direction will materially improve investment conditions and help to stabilize the market.”
The city has also provided much-needed rental housing over the past three years, which could boost office usage down the road.
“In terms of housing, Oakland has done a much better job than San Francisco,” he said, adding that there is infrastructure and good public transportation systems.
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