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Oakland Office Market a Class A Act
Swanky space has become hard to find as firms trade up
By Ryan Tate - San Francisco Business Times
August 6, 2004 - Office tenants have absorbed close to half a million square feet of Class A space in Oakland in the past year, brokers say, making prime real estate harder to come by.
The tenants fueling the drive include local players like BART and Kaiser, who are expanding and trading up from class B office space, as well as wins from other cities, like Ask Jeeves, which last month traded 70,000 square feet in Emeryville for 58,000 square feet in Oakland's 555 City Center.
The influx has dropped Oakland's class A vacancy to 9 percent, according to BT Commercial, a number confirmed by other office market players. That's the lowest rate since the dot-com boom days, when it was 2 or 3 percent.
"I can look at almost any Class A building and say, 'Where's the space?'" said Larry Westland, a broker with TRI Commercial.
"A lot of people just make the assuption there's always great space available" in Oakland, he added.
In fact, top-quality space in Oakland won't come easy -- or cheap.
Shorenstein's 555 City Center, the newest and swankiest building in the city, is 89 percent leased, with only 52,000 square feet left. The biggest chunk of contiguous space is the 24,000 square feet on the top floor, and leasing VP John Dolby said his company expects to extract top dollar for sweeping views of San Francisco, Oakland and the bay.
"We expect someone is going to need to pay for that," he deadpanned.
Other than that, the biggest single chunk of space at 555 City Center is 6,000 square feet.
Dolby said Oakland is benefiting from congestion further inland, which makes the Interstate 680 corridor less attractive, as well as more housing and dining near downtown Oakland, which encourages local offices to stay put.
"There's no reason for people from Oakland to move to San Ramon or Pleasanton," he said. "They used to do that because of clean air and traffic, and now the 680 corridor is a traffic nightmare."
"You'll probably be down to like a 10 percent vacancy for class A space, and were continuing to see activity," Dolby added.
But even as landlords like Shorenstein hold out for more dough, rent growth is expected to be tempered, even in class A space. That's partly because the market remains knee-deep in class B office space.
According to BT Commercial, asking rents for class A office space in downtown Oakland and Lake Merritt have fallen from $26.04 per square foot per year in the second quarter of last year to $25.38 per square foot in the second quarter of this year.
The historic Rotunda Building is close to 90 percent leased after a spate of leasing activity this year.
The Oakland Athletic Club's 85,000 square feet of class A office space at 1438 Webster St. has remained vacant since the four-story structure underwent a $20 million restoration two years ago. Now real estate honchos speculate space there may finally be gobbled up. Steve Banker, with leasing agent LCB Associates, said the firm recently entered discussions with "several large tenants" for 20,000-square-foot blocks of space.
Still, LCB was in talks with prospective tenants for the building as far back as 2002. Also, while class A space is becoming scarce, the market appears to be flooded with class B space, in part because some tenants are trading up.
In fact, Grubb & Ellis estimates that downtown Oakland has, all told, seen 152,000 square feet of office space go vacant in the first half of this year, bringing the total available space to 1.8 million square feet.
"With an increasing number of the Class B vacant spaces sitting on the market for more than 12 months, expect to see rate reductions in order to attract tenants," Grubb & Ellis research manager Erin Proto wrote in a report.
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