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I-680 Corridor / Tri-Valley Office 1st Quarter 2020 Market Update

4/16/20

This report was provided by real estate services firm Kidder Mathews

The first quarter 2020 will be forever remembered for the onset of the new Coronavirus (COVID-19). The ramifications of the virus as it relates to impacting Tri-Valley and Bay Area commercial real estate will be better known in the fourth quarter 2020, but predicting tenant and landlord initial reactions is intuitive in an already sluggish marketplace. With broker incentives and rent reductions already coming on-line in the first quarter 2020 prior to “shelter in place” mandates, there are sure to follow further like-kind measures.

Expect to see in second quarter 2020 further erosion of asking rents and promotions directed at tenants and brokers. Tenants have already begun asking landlords for rent concessions prior to the close of the first quarter to offset forced closing of their office suites. Force Majeure in your typical office or flex lease is a landlord-friendly clause that does not provide rent relief, but this will not stop tenants in forcing landlords to the table to discuss measures of relief. Landlords that decide to offer short term rent relief will look to re-amortize today’s rent concessions inside the balance of a lease term or, where there remains a short remaining term, they will force an additional term to create meaningful rent relief and reasonable rent amortization. If indeed May 3, 2020 will be that date whereby clearance is given to go “back to work,” expect the few live deals in the market to post lease comparables far more aggressive than any in the trailing five years.

Tri-Valley Class A office rates stood at $3.22/s.f., with Class B rates slightly decreasing from the prior quarter to $2.62/s.f. In addition, the office market saw a rise in sublease space across all classes, reporting 777.3k sf at the end of the quarter. Expect to see a further increase in “shadow” sublease space in the second quarter, largely from the immediate effects of the coronavirus as companies decide how to navigate potential uncertainties ahead.

Zenith Insurance agreed to lease the 2nd floor (35.6k sf) at 3 Park Place in Dublin, while global tech company Kapsch completed a 21.2k sf office renewal at 4256 Hacienda Drive in Pleasanton. Investment and owner/user activity increased in the first quarter, with a few major transactions occurring in the Tri-Valley market. Amazon completed the largest owner/user purchase of the quarter by acquiring 5160 Hacienda Drive in Dublin for $50 mil, or $247/s.f. The 201.6k sf office/flex property was fully leased at the time of the sale to Carl Zeiss Meditec. Another user buyer, Intero Chiropractic, acquired a 5.5k sf flex condo at 6620-6626 Drive in Dublin for $2.1 mil, or $383/s.f. Finally, BKM Capital agreed to purchase at 6701 – 6723 Sierra Ct (Sierra Trinity Business Park) in Dublin for a confidential price from Link Industrial as part of a larger portfolio sale.

Comp Deals:

Sales
5160 Hacienda Dr, Dublin, CA
201.6k sf
Sale Price: $50 mil ($248/sf)
Buyer: Amazon
Seller: Link Industrial

Sierra Trinity Bus Park
6701 – 6723 Sierra Ct, Dublin, CA
224.7k sf
Sale Price: Confidential
Buyer: BKM Capital
Seller: Link Industrial

6620 -6626 Dr, Dublin, CA
5.5k sf
Sale Price: $2.1 mil ($383/sf)
Buyer: Intero Chiropractic
Seller: Soma Environmental Engineering

Leases
Zenith Insurance
3 Park Place, Dublin
35.6k sf, Class A

Kapsch
4256 Hacienda Drive, Pleasanton
21.2k sf, Class B

Mr Copy Inc
5050 Hopyard Rd, Pleasanton
12.8k sf, Class A (renewal)

Sono Bello
2000 Crow Canyon Pl, San Ramon
8.6k sf, Class A

Source: CoStar
For more information contact: John Cha, Director of Research






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