While still below average, the vacancy rate for East Bay office space has ticked up from 8.2 percent at the beginning of the year to over 9 percent today, including an uptick in the vacancy rate for existing office space in Oakland’s Central Business District (from 6.6 percent to 7.8 percent over the past six months, corresponding to 142,000 square feet of net negative absorption), according to Cushman & Wakefield.

And as we foretold back in 2016, the known and active demand for office space in the East Bay has dropped from 1.9 million square feet in 2015 to around 1.2 million square feet today, roughly 7 percent of which consists of existing San Francisco tenants looking to expand or relocate versus nearly 30 percent three years ago.

At the same time, in addition to 2.8 million square feet of either unleased or vacant subletable space, including over 900,000 square feet in Oakland’s Central Business District, there’s 2.1 million square feet of new space under development across the East Bay, 876,000 square feet of which is slated to be completed by the end of the year, including the 380,000-square-foot Uptown Station project which remains unleased.

All that being said, the average asking rent for office space in the East Bay has still ticked up to a record $3.51 per square foot per month, up 8 percent over the past year, with asking rents near Lake Merritt, the most expensive submarket, now running around $4.46 per foot (which is actually down 3 cents over the past twelve months).

At around $53.50 per square foot per year, asking rents in Oakland’s CBD are now 26 percent cheaper than in San Francisco, down from 50 percent cheaper at the end of 2014 (when we outlined why Oakland was at a tipping point with respect to demand and growth).

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Comments from “Plugged-In” Readers

  1. Posted by E. Gonsalves

    What’s the vacancy rate for downtown San Francisco?

    • Posted by SocketSite

      It’s 7.4 percent in San Francisco, 8.7 percent in the CBD.

      • Posted by E. Gonsalves

        So, SF has a nearly 1% higher central business vacancy rate than Oakland? Interesting! Oakland must still have the lowest office vacancy rate in the nation.

        • Posted by SocketSite

          Which has been driven, in large part, by a lack of new development. Once again, while the net amount of leased space in Oakland’s CBD has dropped by 142,000 square feet since the beginning of the year, the net amount of leased space in San Francisco’s CBD has increased by 2.4 million square feet.

          • Posted by E. Gonsalves

            You can’t lease space in Oakland if appropriate new space is yet to come online. SF has new recently built space online therefore has a higher number of new leased space. Let’s wait until 601 City Center, 1100 Broadway, and the former “Uber” building are finished, before we draw conclusions about Oakland’s “lull” in demand for office space.

          • Posted by SocketSite

            Actually, you can.

            In fact, nearly all of the newly absorbed space in San Francisco was pre-leased prior to its completion. And in addition to the 380,000-square-foot Uptown Station (former Uber) development, which remains unleased, the 244,000-square-foot project at 2150 Webster Street, which should also be completed by the end of the year, has yet to secure a tenant.

            Regardless, net leasing activity for existing space in Oakland’s CBD was negative in the first two quarters of the year and the pipeline of those looking for space in the East Bay has declined by 37 percent since 2015. But sure, no lull.

          • Posted by steve

            when Oakland doubters in this world appear
            and spin the news that they should cheer
            and frighten all who see or hear
            the cry goes up both far and near
            for E. Gonsalves! E. Gonsalves! E. Gonsalves!

            speed of lightning, roar of thunder
            fighting all who slight or blunder
            E. Gonsalves! E. Gonsalves!

            when in this world the headlines read
            of SF developers filled with greed
            who cast East Bay doubt without need
            to right this wrong with blinding speed
            goes E. Gonsalves! E. Gonsalves! E. Gonsalves!

            speed of lightning, roar of thunder
            fighting all who slight or blunder
            E. Gonsalves! E. Gonsalves!

            set to the tune of the Underdog theme song

          • Posted by Notcom

            I like it!

            But if we may turn away from the shoe shine stand for a minute and get back to leasing: EG should know that pre-leasing does indeed occur in the Eastbay, since 601 City Center – the very building s/he cited – was so treated; although, in his(her?) defense the claim of a lack of space is often cited by real estate firms, and I think it’s fair to say that while pre-leasing of large blocks of space by large firms accounts for much of the space in SF, DO has fewer of them, so post-construction leasing is likely more of a factor here.

          • Posted by SFLandlord

            @ steve – LMAO

          • Posted by E. Gonsalves

            I’m going to frame that and put it on my wall. That’s awesome!

  2. Posted by anon

    So we have 4 relevant data points here:

    1) Over the past 2 years, office rents have increased by around 50%. This points to strong office space demand.

    2) Over the past 2 years, developers have started development of numerous new spaces (2.1MM sqf under development). This points to expected strong demand by the people who put their money on the line (developers).

    3) Vacancy rates ticked up from 8.2% to 9.0% over past 6 months. A mild signal of lower demand.

    4) A negative net absorption rate for the last quarter which is roughly equivalent to the positive net absorption
    rate for the last two quarters. It is hard to get any clear indication if demand is increasing or decreasing from this data point.

    Here is my honest question: How do you look at the 4 data points above an come away with the conclusion that the “East Bay Office Market is in a Lull”? I just cannot come to the same conclusion looking at the same data points.

    • Posted by SocketSite

      Don’t forget 5) “[T]he known and active demand for office space in the East Bay has dropped from 1.9 million square feet in 2015 to around 1.2 million square feet today, roughly 7 percent of which consists of existing San Francisco tenants looking to expand or relocate versus nearly 30 percent three years ago” or 6) “the 380,000-square-foot Uptown Station project…remains unleased.”

      And to further quote Cushman & Wakefield, “Gross [office market] activity has been anemic thus far in 2018 totaling approximately 800,000 [square feet]. This is less than half the volume seen at the midpoint of each of the past three years.”

      But sure, who knows or could possibly spot a trend…

  3. Posted by Notcom

    So maybe it would be a good time to revisit what is/was meant by “tipping point” – or better yet retire it altogether from discussions about DO (and send it back to the climatologists) – since to the casual observer – this one anyway – the area isn’t much different than it was 4 (or 14 or even 40) years ago: bigger, on an absolute basis, than St Paul. but smaller on a relative basis (St Paul: Minneapolis vs. Oakland: SF)…so nice, perhaps, on its own merits but playing a smaller part in the Bay Area’s economy than many think it “should”.

    • Posted by E. Gonsalves

      Oakland is the second largest downtown in the Bay Area. The downtown office population is 2x the size of San Jose’s. DTO is growing by leaps and bounds. There are currently around 18 construction cranes in Oakland with the vast majority downtown.

    • Posted by oakland lover

      Notcom, you must not know Oakland well at all. To say it is the same as even 4 years ago is laughable. The amount of new residents, new appts, condos, etc, downtown is shocking. Spending an night in DTO is like night and day vs 10 years ago. Its alive and “happening.”

      And that is not counting the countless cranes doting the DTO skyline right now, which is more than SF DT right now, especially relating to residential.

      But sure, I guess one could also say SF looks about the same as 30 years ago, north of market St that is, ignoring the massive SOMA/Transbay boom.

      • Posted by Notcom

        I’ve lived in Oakland since 1966, and my family has had a presence in the Eastbay since the 1870’s, so I’ll let people decide what constitutes “well”. But I will point out my comments were directed largely to the idea that DO was “at a tipping point”: it is and has been – for 150+ years – the second largest downtown in the Bay Area, and it has only a fraction of the office development many hope for it. I don’t think that has changed.

        P.S. the number of cranes doesn’t seem “countless”…EG counted them: 18.

        • Posted by oakland lover

          I see what you mean. 18 cranes is a lot though! DTO is drastically different IMO over the last 10 years and especially last 5 and when the latest boom ends will be even more so.

          Especially as they have remade the lake and reduced lanes on streeets such as telegrpah, upper broadway and grand ave. I hope they do the same to clairmont Ave.

          To your point it will always be #2 to SF. Thats ok.

      • Posted by jwb

        You’re right, 4 years ago we didn’t have tent cities. Or rather, we were in between tent cities, having just cleared out Occupy.

        But really, main difference in Oakland is the population has grown over 1% per year since 2010, which is noticeable.

    • Posted by Rene Chateaubriand

      Notcom:

      Your statement, and I quote, “the area isn’t much different than it was 4 (or 14 or even 40) years ago.”

      This is an astonishing falsehood, and confirms an anti-Oakland animus you have for most likely the usual reasons (Right-ward political leanings, racism, etc.). The fact is,at least two billion dollars of construction in and around the DTO currently takes place, constituting the most intensive, concentrated construction activity not in “4 (or 14 or even 40) years ago,” but dating back to the pre-war era of the twentieth century.

      This is an irrefutable fact, easily confirmed by reviewing City of Oakland parcels and construction records, or just using that rather abstruse thingamajiggy, “GOOGLE.”

      Try it when you can. It would provide you a good reason why any discerning contributor, including this repatriated (from NYC) San Franciscan would view your contributions as far less than even of questionable accuracy but rather of jaundiced, bad-faith sentiments.

  4. Posted by Anon123

    I know many readers here hate the notion of supply and demand ruling the market but looking at the presented data – @ $2.35 there was huge absorption leading to low vacancy rates (as noted by EG). This led to sharp increase in asking prices, currently about $3.50 – which curbed the demand. If the new office buildings going up are looking to charging $3.50 they may be in trouble, but if they pencil out at $2.50 they should fill up.

    • Posted by SocketSite

      Looking at it another way, there was huge absorption leading to low vacancy rates when asking rents in Oakland’s CBD were 50 percent cheaper than in San Francisco, versus negative absorption at 26 percent cheaper over the past six months, as we noted above.

    • Posted by E. Gonsalves

      For East Bay residents the commute to Downtown Oakland is much easier than the commute to San Francisco. In the final analysis the convenience of DTO will justify the rising rent prices downtown Oakland. Let’s face it, access to and from S.F. is horrible and will only get worse as those new office buildings fill up. At some point the gridlock and the huge East Bay population will shift most office construction to downtown Oakland. DTO is the only logical choice if we want to grow as a region.

      • Posted by SFRealist

        Google may respectfully disagree, seeing as they’re opening a huge office in downtown San Jose.

      • Posted by Out of Town

        Real estate prices often defy logic and common sense.

  5. Posted by anon

    I know it’s small compared to some other companies but The North Face just announced a move to Denver. I know a couple of people- both designers who live in Oakland who are going to move with the company to CO.

    • Posted by Notcom

      I don’t think it’s so much that it’s small as much as the fact that TNF isn’t (currently) HQed in DO; so while your friends departure will impact the residential market in Oakland, it has no impact on the Office component (other than the abstract one of Alameda having add’l office space available, and it’s in competition – loosely – with DO)

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