The Small Space Marketplace

List Your Space

Find Space

Home About Us Executive Subscriber Membership RENTV Conferences Newsletter Contact Us Advertise
March 28, 2024
 Search RENTV
   Go!
 The REview
 News
News Home Page
Southern California
Northern California
Pacific Northwest
Texas/Southwest
Retail
Multifamily
Financing
Prop. Management
Archives
Press Releases
 R. E. Marketplace
Service Providers
JobWorks
Property Spotlight
 RENTV  Conferences
Subscriber Login:
  
Email      
    Go!
Password      
Forgot Password?



BAY AREA NEWS
Printer-friendly Version   Email an Associate
East Bay Industrial Vacancy Rate Up Slightly and Expected to Continue to Rise Due to New Construction

5/05/21

This report was provided by the East Bay office of real estate services firm Cushman & Wakefield

ECONOMY: Path to Recovery Comes Into Focus

The East Bay, consisting of Alameda and Contra Costa counties, recorded a decline in job growth with nearly 113,000 jobs (-9.4%) lost year-over-year (YOY), bringing regional employment to just over 1.08 million. With this loss, the unemployment rate correspondingly rose +410 basis points (bps) to 7.2%, significantly above the national rate of 6.0%. Upon the arrival of COVID-19 in the U.S., the economy entered a historically unprecedented recession in March of 2020. In the East Bay, consumer services industries were severely impacted, particularly the restaurant and retail sectors. The commercial real estate market saw a decline in office occupancy levels due to government shelter-in place orders, while the warehousing and distribution sector recorded consistent growth due to increasing consumer reliance on online marketplaces. The recovery began in the late spring of 2020 at a slow clip because of uncertainty regarding a vaccine timeline for the novel disease. With the advent of reliable vaccines in early 2021, the road to full recovery has become clearer and California is expected to fully reopen by June of 2021.

SUPPLY: Vacancy Rise Manifested in Smaller Blocks

The vacancy rate in the East Bay Oakland industrial market was 5.7% at the end of the first quarter, having edged up 30 bps from the end of 2020 and up 110 bps from this time last year. While existing space givebacks were responsible for some of this increase, about 60% of the 2.1 msf added to the market in the past year has been in new construction. Reflecting pandemic trends seen in other product types, sublease space continued to flood the market with 1.3 msf of sublease space currently available, representing a 64% YOY increase. The YOY rise in availabilities was most pronounced in the 10k sf to 50k sf size segment, reflecting the disproportional impact the ongoing pandemic has had on smaller industrial users in that size range. With several large blocks of space slated to be vacated in the coming months, and 1.3 msf of available product currently under construction, vacancy is expected to increase in the next year, though will still remain near historically low levels.

PRICING: Rents Rise Year-Over-Year; Growth to Level Out Soon

Even with the steady flow of space hitting the market, rents nevertheless continued ascending, closing the first quarter at $1.06 per square foot (psf) on a monthly triple-net basis, up $0.09 YOY though slightly down from $1.07 psf at the end of 2020. Rent growth in recent years has been buoyed by strong and rising demand from traditional warehouse users, especially those requiring more than 100k sf of space, a size segment which started exhibiting particularly tight vacancy in the first quarter of 2015. New construction has also played a large role, with the market seeing an average of 1.4 msf of modern warehouse and distribution space delivered annually over the same time period. In recent months, there has been a notable rise in demand from the e-commerce sector due to growing consumer reliance on online shopping and delivery services as the COVID-19 pandemic continues. Requirements originating from this sector necessarily require large, modern distribution space, fueling rent growth particularly for that product type. With asking rents nearly at the high watermark for the market, growth has flattened after the substantial gains realized between 2012 and 2017, when asking rates averaged 12.3% annual increases. Looking forward over the next 12 months, there will be a bifurcation in pricing amongst asset classes, with rents on older class C product expected to remain flat or decline while modern, large-block class A space will see continued rent growth due to high demand and limited new supply in the pipeline.

DEMAND: E-Commerce Drives Occupancy Growth

Occupancy growth was in the black in the first quarter of 2021, with net absorption totaling positive 151.6k sf. These gains were fully realized in the warehouse sector, where net absorption totaled 294.4k sf, while the manufacturing sector saw occupancy decline by negative 142.8k sf. Occupancy growth in recent years has been driven by the delivery of preleased new construction, particularly to e-commerce users. In the context of this trend, 2020 was a particularly notable year in which occupancy grew by positive 883.7k sf due in no small part to a record-breaking 1.2 msf of preleased construction deliveries in the first quarter of that year. That trend has been bucked so far in 2021 with 798.4k sf of new product added to the market, all of which is presently available; occupancy growth was thus entirely manifested in reabsorption of existing vacant space. There is 374k sf of preleased new construction slated for delivery in the latter half of the year, though these gains to occupancy will be somewhat tempered by givebacks of existing space. Leasing activity was robust in the first quarter, with gross absorption totaling 2.3 msf, significantly above the quarterly average even before the COVID-19 pandemic. Furthermore, there are currently 5.7 msf of warehouse and logistics requirements in the marketplace, with 4.9 msf of these requirements over 100k sf. While the lasting effects of the COVID-19 pandemic on the East Bay Oakland market remain to be seen, the combination of preleased new construction and strong e-commerce demand will help dampen occupancy losses in the coming months.

OUTLOOK

• Asking rents at the end of the first quarter were $1.06 psf, up $0.09 from this time last year, though down $0.01 from the fourth quarter of 2020. Looking forward, rents will decline slightly due to the glut of product on the market and a tapering-off of demand from smaller users, though losses will be tempered by continued demand from the e-commerce sector.

• There was 798.4k sf of new product delivered in the first quarter, all of which is presently available. Additionally, there is 1.7 msf currently under construction with 374k sf preleased, all slated for delivery in 2021.

• The vacancy rate was 5.7% at the end of first quarter, having ticked up 30 bps from the third quarter, and up 110 bps from this time last year. Vacancy is expected to continue rising through 2021 and will be primarily driven by the delivery of new construction.





Return to the Archive page


 
 
 
 
 





Home | About Us | Newsletter | Contact Us | Executive Subscriber Membership | Executive Subscriber Home | Advertise
Southern California | Northern California | Pacific Northwest | Southwest | Retail | Multifamily | Financing | Property Management
Archives | Press Releases | Service Providers | JobWorks | Property Listings

Copyright © 2024 by RENTV, All Rights Reserved
Website designed by Regency Web Services, Inc. and powered by Lightning Media