Oakland, the East Bay & Commercial Real Estate
May 03, 2013
San Francisco's commercial office market is on fire - vacancy rates are dropping quickly while rental rates are rising rapidly. Yet, just across the bridge in Oakland and the East Bay, the commercial real estate market remains flat.
The varying demographics and industries between San Francisco and the rest of the Bay Area play a huge role in how quickly each city sees the benefit of the current commercial real estate boom. San Francisco is building its boom on a young, transient workforce in the technology industry who loves San Francisco for its independent lifestyle, beauty and uniqueness. Oakland and the East Bay, on the other hand, are built on families and conventional businesses - the lifestyle there can be replicated in almost every city in the United States.
Oakland and the East Bay have a history of benefitting from an exodus of firms relocating out of San Francisco during commercial real estate booms of the past. The 1980's office boom saw major firms move their "back office" locations closer to where their employees lived, lowering the East Bay's office vacancy rates while San Francisco's office vacancy rate climbed higher and higher. In order to stay relevant, San Francisco landlords were forced to renovate their office buildings to meet tenant needs for smaller office space. During the dot-com boom, San Francisco's vacancy rate dipped to under two percent and firms had no choice but to look at Oakland and other East Bay markets for growth opportunities and more space. However, once the dot-com boom ended, the firms that survived eventually returned to San Francisco.
In the first quarter of 2013, Oakland's office vacancy actually increased by 60,000 square feet with an overall vacancy factor of almost sixteen percent, while the East Bay market as a whole saw similar results with overall vacancy of eighteen percent. These numbers remain virtually unchanged since the economy saw the start of its expansion.
There are several factors that contribute to Oakland and the East Bay's high vacancy rates, with transportation being one of the most prevalent. It is extremely difficult if not impossible for employees to get to Oakland and the East Bay from areas such as Marin County and San Mateo relying solely on public transportation. San Francisco has the benefit of BART, Muni, Caltrain and Bay Ferry connections but it is a major time drain to commute each day. There is also the hard reality that the majority of today's young employee base does not want to be live or work in the East Bay, San Francisco is their location of choice. Another contributing factor is that the Oakland and East Bay market does not have the close-knit culture of tech firms that San Francisco benefits from in creating collaboration among businesses.
Hope for the East Bay's recovery lies in conventional businesses that are being priced out of San Francisco. Today's office rents have increased over forty percent in less than two years and while businesses may be recovering from the recession, they have not seen their businesses grow anywhere near forty percent. Non-profits squeezed by rents and lower funding are also candidates for Oakland and East Bay office space. The increase in San Francisco housing prices will also shift employees to wider reaches of the Bay Area, increasing the need for the return of ‘back office’ locations. With much to offer, Oakland and the East bay will soon see a recovery in the commercial real estate market and be close on the heels of their golden neighbor city to the West.
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Written by: Hans Hansson
Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 28 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.