Two Northern California Cities Are Prime Markets For Buying Office Assets, Says Ten-X
The time is right to buy office assets in Oakland and Sacramento. These two Northern California cities are among Ten-X’s current top five “buy” office markets due to strong job growth, low vacancy rates and healthy rent growth.
Oakland is ranked as the top buy market with rents expected to rise 4% by 2020. Ten-X calculated rents at $25.06/SF during Q1 2017, and rents are expected to rise to $26.06/SF by 2020. Employment levels are at an all-time high and rose 2% to 3% in the professional/business sector. The education and healthcare services sectors also are creating strong job growth.
"Driven by employment gains in several sectors, Oakland has enjoyed remarkably consistent payroll growth in recent years, and the city's population growth continues to outpace the national average," Ten-X Chief Economist Peter Muoio said.
Vacancies improved during the first quarter by 70 basis points to 14% and Ten-X expects vacancies to remain stable in 2020.
Even under Ten-X's downturn scenario for 2019-2020, the limited incoming supply makes Oakland a safer long-term bet since it will have fewer vacancies during a downturn, according to Muoio.
"In contrast, the highly touted San Francisco market has seen anticipatory leasing, slowing rent growth and a robust construction pipeline, giving investors significant downside risk," Muoio said.
At the state’s capital, which was ranked as the third-best “buy” market, employment is 4% higher than its previous peak. While growth has been minimal in the government sector, education and healthcare services employment increased by more than 4%.
Sacramento rents are below their prior peak, but Ten-X expects rents to rise 3.4% by 2020. Rents in Q1 2017 were at $20.02/SF and should rise to $20.69/SF by 2020. Vacancies are at about 18% even though there is virtually no new supply in the pipeline. Ten-X expects strong demand for office to continue through 2018 with tightening vacancies due to the lack of development. Vacancy is expected to decrease 40 basis points to 17.7% by 2020.