IRR-Oakland Mid-Year Viewpoint 2015 Local Market Report - Office
Demand from San Francisco tenants has been high in early 2015, with healthy tour activity and positive net absorption in the first quarter. Deal activity pales in comparison to tenant requirements in the market as most tenants are noting a lack of quality space available. Further, there is some functional obsolescence in the existing supply that makes full-floor leasing a challenge for landlords. All factors considered, a lack of quality supply is negatively impacting market recovery. The effect over the first quarter 2015 was a notable increase in average asking rent for the Class A space. Vacancy decreased notably during 2014, and is predicted to continue its rapid decline over the remainder of 2015. Further, the continually declining vacancy is expected to facilitate above average rent growth later this year.
Office owners in Oakland are making a concerted effort to attract technology tenants from the continually improving San Francisco and Silicon Valley submarkets.
For example, the six-story 360,000 square foot former Sears building in downtown Oakland is currently being renovated to reflect a retail and
creative office mixed use project. This property’s location near BART in the Uptown submarket is close to housing and entertainment options. Other historical buildings in the Oakland CBD submarkets are also undergoing renovations to reflect more open layouts, full floor leasing and modern finishes. The Latham Square project, for example, is currently marketing three full floor suites that are undergoing speculative, creative renovations in an attempt attract tech users. Although investor activity has recently been limited, it is due primarily to a lack of quality opportunities. Projects with good upside potential are quickly snapped up given that cap rates are 300 to 500 basis points above those in San Francisco.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.