OAKLAND, Calif., February 1, 2019 – The East Bay/Oakland office market received a big boost from “big tech” in the fourth quarter of 2018, according to Cushman & Wakefield’s recent Q4 2018 market report. Mobile payment company Square’s lease for 355,762 sf at Uptown Station, currently under renovation, in Oakland’s CBD Lake Merritt submarket, helped propel leasing activity in the year’s final period. Meanwhile, vacancy returned to single digits to close 2018 at 9.7%.
Molly Herrick, Cushman & Wakefield’s Market Director for the East Bay, said, “Leasing activity ramped up in the fourth quarter driven by Square, one of the largest office deals ever in Oakland’s history. The East Bay/Oakland office market achieved more than 1 msf of gross absorption during the quarter which made up 40% of the market’s total 2.5 msf of gross activity in 2018.”
Per the report, there were also a handful of other large deals executed across various professional and healthcare industries in Q4 2018, adding to the tally of activity, including Novartis (75,000 sf, Emeryville), WeWork (68,000 sf, Oak CBD/LM), State Department of Insurance (46,908 sf, Oak CBD/LM), and Zogenix (37,307 sf, Emeryville). The report indicated all five top leases signed in the fourth quarter were new deals—three of which were in new construction projects.
Herrick added, “Occupancy levels were also improved in the fourth quarter with 116,000 sf of positive net absorption, bringing the market to 130,200 sf of overall annual growth. Over just the past five years, the East Bay/Oakland office market has seen robust occupancy growth totaling approximately 2.2 million square feet.”
Keith Reichert, local Research Analyst with Cushman & Wakefield in Oakland, said, “Uptown Station is expected to be occupied by Square in 2019. The company’s move-in will also substantially boost our net occupancy stats ahead this year.”
He added, “Square’s expansion into our market is huge. There is the strong potential to influence other tech tenants to migrate from San Francisco where expansion opportunities are now limited.”
He continued, “With 773,100 sf of available Class A space currently under construction or renovation in Oakland along with the delivery of thousands of residential units, and now the entry of Square, Oakland continues to grow into a more diverse, mature office market where skilled employees desire to live and work.”
Asking rents continued their ascent in the East Bay/Oakland office market in the fourth quarter, closing 2018 at an average of $3.74 per-square-foot (psf) on a monthly full-service basis, up 14.4% from year-end 2017.
Dane Hooks, Managing Director with Cushman & Wakefield in Oakland who specializes in office leasing and sales, said, “Rent growth in the current cycle has been concentrated in Downtown Oakland where asking rents are now $4.58 psf, an increase of over 80% over the past five years.”
He added, “The recent rapid appreciation of per-square-foot sale prices, especially in the downtown submarkets, has put pressure on new landlords to underwrite steeper rents.” He added, “With investment sales activity to remain strong, we likewise expect that rents will continue on an upward trajectory over the next year with towering demand and the delivery of new, modern space.”
John Dolby, Executive Director with Cushman & Wakefield in Oakland who also specializes in office leasing and sales, said, “Bolstered by strong market fundamentals, sale prices have continued to escalate. 1330 Broadway, sold in the latter half of 2018 for $550 per square foot. Seller TMG had acquired the property approximately two years prior for $267 per square foot.” He added, “Strong investment activity in Downtown Oakland will persist with several assets expected to trade north of $500 per square foot in 2019.”
Dolby projected, “We expect sale prices to continue increasing as new office and apartment construction deliver across the market, spurring increasing demand.”
The report indicates the Oakland-Hayward-Berkeley metro division, added 21,000 jobs (+1.8% growth year-over-year), bringing employment to just over 1.19 million, per data compiled from the Bureau of Labor Statistics.
Herrick said, “Unemployment fell 40 basis points year-over-year to 3.0%. Job growth has slowed in recent years as the region nears full employment, while a housing shortage has presented an obstacle to labor force growth. However, some relief is on the horizon. There are now over 5,600 apartment units under construction in Oakland which will spur labor force growth. Employment levels will also be boosted by large office tenant migrations and expansions coming to the market in the next twelve months.”
Hooks concluded, “Demand for office space in the market is presently at historically high levels. Oakland is now poised for a record year of leasing in 2019 off the heels of the Square deal and a robust multifamily pipeline.”
CLICK HERE to access Q4 2018 East Bay/Oakland Office MarketBeat Report
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