Usually Seen as Secondary to San Francisco, City Draws More Businesses

By: Sheila Muto - The Wall Street Journal

- June 27, 2001 - During its 20 years in business, Triton Container International Inc. has made San Francisco its operation base, occupying the same five-story building that offers a view of the ships cruising into San Francisco Bay.

Now, the marine cargo container supplier, a unit of closely held Triton Holdings Ltd. of Bermuda, is contemplating trading its 40,000 square foot headquarters for about 60,000 square feet of space eastward across the bay in Oakland. But Triton isn't being lured by the prospect of lower office rental rates there, which usually has been the main reason businesses have relocated to Oakland from San Francisco. Instead, Triton is considering the change primarily because nearly half its 100 employees now live in the so-called East Bay.

"We own our own building.so we're not under any leasing pressure. It's a matter of quality-of-life reasons and easing the commute for our people," explains Triton Container Chairman Ed Schneider, who notes that commuting over the Bay Bridge to San Francisco from the East Bay has "become more difficult to deal with in recent years. Moreover, Oakland offers easy access to BART-Bay Area Rapid Transit, the region's light-rail system, he says. A move, Mr. Schneider adds, would reduce "the time and pain and aggravation associated with the commute for most our work force and the cost differential that represents."

If Triton Container signs a 60,000 square foot lease in Oakland, it will have the distinction of being among the biggest new lease deals in both San Francisco and Oakland so far this year, a sign of just how far the region's office market has fallen. While Triton Container's possible move also makes sense given that most of the container ships that pass through the bay dock at the Port of Oakland, it reflects a shift in both the perception and reality of Oakland and may signal the emerging long-term health of its office market.

Traditionally, office tenants have viewed Oakland simply as a secondary or back-office alternative to San Francisco and other markets, due in large part to its reputation as a city mired in crime and politics that made it tough for businesses to operate. And when demand for space from dot-coms initially spilled over from San Francisco a few years ago, Oakland was still the runner-up destination to the neighboring city of Emeryville, which doesn't have BART access within its jurisdiction as Oakland does.

Now, "Oakland no longer is just a secondary offshoot of San Francisco," says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. He attributes that mostly to the efforts of Oakland mayor Jerry Brown, who during the past few years has helped reverse the perception that Oakland is unsafe and is pushing ahead on an initiative to build about 6,000 housing units to attract 10,000 new residents to the downtown area by 2003. The investor and corporate communities "feel there's more long-term stability in Oakland now with the pro-businesses attitude from Jerry Brown," says Mr. Rosen.

And with the area's horrendous commute-particularly into San Francisco-getting even worse, Oakland "has a long-run competitive advantage" compared with other markets because it is "the hub of both the BART and highway system," adds Mr. Rosen. In terms of transportation, "Oakland is the center, while San Francisco is the offshoot."

To be sure, the pro-business attitude and subsequent development have come with a price, raising the ire of longtime, mostly African American residents of the struggling West Oakland area, who are feeling squeezed out of their neighborhood. And Oakland is still dependent on the overall economy-and may experience some downward pressure on its office rents from markets such as Emeryville, where the vacancy rate is more than 20%. But Oakland's overall office market appears healthier compared with San Francisco in large part because Oakland attracted mostly Old Economy tenants in recent years, says Mr. Rosen.

While its rental rates are lower than those commanded by San Francisco landlords, Oakland's overall vacancy rate is also slightly lower. The nearly 12 million square foot office market in Oakland's central business district currently boasts about a 7% vacancy rate and rents ranging from about $27 to $42 a square foot depending on the quality, according to real-estate brokerage Colliers International Inc. By comparison, the 45 million square feet of space in San Francisco's central business district has a vacancy rate of about 10% and an overall average rent of nearly $41.50 a square foot.

"Oakland has really turned a corner," says Keith Mackenzie, who manages brokerage firm Grubb & Ellis Co.'s Oakland office, who notes that he is looking to hire a few more people to work in the Oakland-area market. Not only have "entertainment venues and shopping improved" in Oakland, but investments made in the market by San Francisco-based Shorenstein Co. have improved Oakland's image, he adds. The closely held real-estate firm broke ground last year for a 487,000 square foot office building in downtown Oakland near City Center, the 1.1 million-square-foot office and retail complex it purchased in 1996. "Financial institutions and tenants now see Oakland has a quality landlord," says Mr. Mackenzie.

Even though it put up for sub lease the nearly 160,000 square feet of space it leased last year in the Shorenstein high-rise building currently under construction, Ask Jeeves Inc. had planned to relocate its Emeryville headquarters to downtown Oakland. A spokeswoman says the company, best know for its Web search engine, was initially drawn to Oakland by its "great mass transportation, good freeways access and entertainment and retail." Since putting the space on the sublease market a few weeks ago, Ask Jeeves has two prospective tenants looking for a total of 96,000 square feet.

A contingent of government agencies has also been drawn to Oakland in recent months. The investigations unit of U.S. Customs moved from San Francisco to a 25,000 square foot office in Oakland, due in large part to its more central location for investigators and parking availability in Oakland, says a spokeswoman for the General Services Administration. The National Park Service's San Francisco regional office is currently moving into 50,000 square feet in Oakland, and the Federal Emergency Management Agency will "most likely" move its San Francisco office to Oakland, she adds.

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