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East Bay / Oakland Office Market Expected to Pick Up After Slow 1st Quarter

5/03/19

This report was provided by real estate services firm Cushman & Wakefield

The East Bay / Oakland office market may have got off to a slow start in 2019, with virtually no growth and moderate leasing activity, but significant growth, driven primarily by in-migration from major tech users, awaits just on the horizon, according to Cushman & Wakefield’s new Q1 2019 market report. Meanwhile, rental rates continue to climb overall, led by rates in the region’s CBD areas, while investment sales pricing continues to reach new heights. Despite the sluggish start, the firm’s local experts maintain a highly positive outlook for the region, as a result of new tech activity plus housing opportunities.

Keith Reichert, local Research Analyst with Cushman & Wakefield in Oakland, said, “Office vacancy for the East Bay / Oakland market remains healthy at 9.5%, essentially unchanged from the previous quarter, while gross leasing activity totaled just 530k sf, roughly half of the level we recorded last quarter—which notably was led by Square’s leasing 356k sf at Uptown Station in late 2018, one of the single largest office lease transactions in Oakland’s history.”

The first quarter report showed that net absorption, or actual change in occupancy, was virtually flat in the first quarter with a minuscule negative 3.8k sf. Experts indicate that market growth remains hamstrung by supply.

Reichert added, “Net absorption should rebound in the coming quarters as significant occupancies transpire, including as Uptown Station delivers preleased to Square and 601 City Center delivers partially preleased to Blue Shield, which leased an additional floor in the first quarter, bringing their total leased sf in the building to 250k sf. These two projects will add an additional 600k sf to occupancy growth, plus San Francisco-based Credit Karma has just signed a lease early in the second quarter for 100k sf at 1100 Broadway, also under construction.”

Ryan Hattersley, Executive Managing Director of Cushman & Wakefield in Oakland said, "Leasing activity will see a boost in the near future as new construction and renovation projects deliver, with a growing portion of tenant activity migrating from San Francisco where expansion opportunities are scarce.”

The report indicates that the upcoming market addition of newcomers Square, followed now by CreditKarma, has the potential to establish Oakland’s viability as a tech hub, spurring other tech tenants to the region.

The report also points out that coworking is taking off in the East Bay, a concept expected to stimulate activity from smaller tenants and individuals who prioritize flexibility and convenience in their office-using needs.

Despite the sluggish activity level, the report revealed that office asking rents continued to escalate in the first quarter, now at $3.68 per-square-foot (psf) on a monthly full-service basis, representing an 8.9% year-over-year increase. Rents are expected to continue their upward trajectory over the next year as demand remains strong, new space is delivered, and buildings trade at record breaking prices.

As for investment activity, there was over 1.3 msf that traded in the first quarter with per-square-foot (psf) sale prices climbing to new heights. Most notable were Starwood Capital Group’s acquisition of four properties in CIM’s Oakland portfolio for $512 mil, or $431 psf—this price skewed down as the portfolio also included a 210k sf parking garage. A total of $494.3 mil was allocated to the office portion of the portfolio, equating to $515 psf. In Emeryville, a new high watermark psf sale price was achieved with Novartis’ sale of 5300 Chiron Way along with several development sites to Biomed Realty for $135 mil. Biomed plans to transition the formerly owner-occupied space into a state-of-the-art multi-tenant office and laboratory facility and to construct several new buildings on the site.

Hattersley continued, “We expect both rental rates and sale prices to continue to rise market-wide as new office construction delivers, and San Francisco tenants continue to see Oakland as a viable alternative.”






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