SNAPSHOT, APRIL 2004

East Bay Office Market

The East Bay/Oakland office development market is stagnant with no new projects in sight, according to senior associate Brent Johnson, vice president Lawrence Easterly and research services manager Erin Proto of Grubb & Ellis’ Walnut Creek, California, office.

Leasing activity has been strong, however, as E-Loan rented 118,000 square feet in Pleasanton, California. World Savings secured 20,000 square feet at Pleasanton Corporate Commons B, and Seimen Medical Savings leased 17,325 square feet at Bernal Corporate Plaza I, also in Pleasanton. Other large leases include Travelers Insurance, renting 86,083 square feet at Centre Pointe 4 in Walnut Creek; Fremont Investment & Loan, signing on for 61,508 square feet at Metroplex I in Concord; and Kaiser Foundation Health Plan, leasing 24,960 square feet at One Concord Centre.

Rental rates for Class A office properties in the East Bay area range from $1.70 to $2.85 per square foot. At the end of 2003, East Bay office vacancy stood at 14.8 percent.

“The East Bay ended the year on a favorable note with more than 31,000 square feet of positive net absorption for the 4th quarter as the vacancy rate stabilized,” reports the Grubb & Ellis team. Additionally, sublease space diminished by more than 25 percent in the past year, bringing the total sublease space down from 3.7 million to 2.8 million square feet.

How quickly the market begins to feel the full effects of economic recovery and what fuels that surge are the question marks hanging over the East Bay office sector, say Johnson, Easterly and Proto. One major factor they point to is job growth, citing the UCLA Anderson Forecast’s projection of 1.6 and 2.1 percent growth for the market in 2004 and 2005, respectively. Small- to medium-sized businesses will supply the main thrust to that expansion. The growth, though modest, will help relieve some of the pressures on a market burdened by 8.6 million feet of vacant space.

“Landlords should anticipate that high vacancies will continue to drag down rental rates throughout the first half of 2004,” says the Grubb & Ellis team. “Competition for [attracting] new tenants and retaining current tenants will remain fierce throughout 2004.”

Due to the current office market conditions, small tenants carry greater weight. According to Johnson, Easterly and Proto, landlords should be ready to accommodate these small tenants in order to remain competitive.

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