Market Updates

East Bay Market Report December 2023


Most areas of the East Bay have reclaimed prepandemic rent levels, but year-over-year growth is now -1.0%, showing visible erosion after a recent five-year peak of 5.5%. Submarkets in more densely populated urban areas like Downtown Oakland, for example, have yet to reclaim pre-pandemic rental rates. At a macro level, some of this is the result of residents tightening budgets to battle historically high inflation, which has resulted in some hesitancy to sign new leases. Household formations are thus down, reducing demand and eroding landlord pricing power.


As of the fourth quarter of 2023, a net of 2,700 units have been absorbed on a trailing 12-month basis. For reference, the prior decade average was 1,700 units, with a peak of 7,000 units in 2021. Vacancies are thus trending to 7.3%, reflecting a one-year change of -0.2%. The previous five-year average vacancy mark equates to 6.6%. However, a dwindling supply pipeline and slowing apartment starts could provide some relief. In fact, the effects of supply pressure are being felt more acutely in certain submarkets like Downtown Oakland. The area is experiencing a significant amount of the metro’s construction activity. Other areas of the metro, particularly certain suburban communities in the eastern portion of the East Bay, are experiencing lower vacancy rates when compared with their urban counterparts.


4,100 units are underway as of the fourth quarter of 2023. Recent projects to complete include the 419-unit midrise VESPR project on 24th Street developed by The Holland Partner Group out of Vancouver, Washington. Occupancy is nearing 70%. Holland also broke ground on the 328-unit 24th and Waverly, located at 2359 Harrison Street, with a completion timeline expected to stretch into 2024. The 19th Street BART station is located about one-half of a mile to the south.

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Oakland is facing headwinds on two fronts. First, the tech tenants spilling over from San Francisco have entirely dried up. Many of these firms have pivoted to differing real estate strategies, primarily looking to reduce their real estate costs either through a reduction in space, relocation, or both. Prolonged periods of negative demand have put downward pressure on lease rates, which have fallen by -0.8% over the past year and -3.2% over the past three years. Property owners are increasingly concerned with maintaining occupancy and are willing to offer discounts as well as concessions in order to achieve it.


Market vacancy in the East Bay is currently 13.8%. Leases have been noticeably smaller in 2023. Since the start of the year, only five leases have signed for 25,000 SF or more, the largest of which was for 50,000 SF. Sublease availability rests at 2.5%, slightly ahead of the national figure of 2.4%. Most of the space currently hitting the market is direct, as the sublease is comparable to levels in early 2021. More than forty buildings are in the market with at least 100,000 SF available. The large blocks of space are a result of the large tenants that had previously occupied the market, a downside of the market’s reliance on the tech sector for occupancy, and the 1.5 million SF added to the market over the past five years.


In Q4 of 2023, there is only 54,000 SF under construction. This is comprised of two buildings, the largest of which is the Fremont Bank building, a 35,000 SF 4-Star property that is expected to complete before the end of 2023. Both of the buildings will be fully occupied upon completion, not impacting the market’s vacancy or availability rates. Office construction will be rare for some time, except for the occasional build-to-suit property. The East Bay market has never been known for large-scale speculative construction, and the vacancy rate of 13.8% is far too high to justify adding inventory to the market anytime soon. 

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Slow leasing and declining port activity have had a chilling effect on rent growth. The East Bay is still considerably more expensive than national figures, commanding more than a 40% rent premium. Sales volume has slowed in 2023, but strong activity in the second half of 2022 has helped push activity to $2.1 billion from 220 transactions. Transaction levels are consistent with activity over the past five years, averaging $2.3 billion over the past five years. Higher interest rates have eroded property values across all sectors. Industrial buildings hold their value best, but properties are still losing value.


With significant construction coming online, the market’s outlook hinges on prospects for tenant demand. At 5.7%, the vacancy rate is in line with historical averages. Net absorption reached -1.7 million SF over the past year, a far cry from the average over the past five years of 1.3 million SF. Decreased leasing activity is partly due to the declining use of the Port of Oakland, which has seen volume decline by more than 14% since the middle of 2022. This has been a trend for some time as supply chain issues pushed importers to utilize other ports. As a result, the Port of Oakland processed 200,000 TEUs in 2022 than it did in 2018.


There is roughly 2.9 million SF due to complete through 2023, the highest total since 2020, leaving the market exposed to oversupply risk in the coming quarters. Inventory of unleased projects currently under construction is also spread fairly evenly along the I880/I-580 corridors in areas such as Fremont, Hayward, and Richmond, meaning no individual submarkets are faced with an overwhelming tally of new supply. The properties still under development are almost exclusively located proximate to the market’s waterways, indicating that large-scale distribution centers are being located further east in either the Stockton or Modesto markets.

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After struggling to retain tenants from 2019 to 2022, retail demand increased in 2023, resulting in the only positive net absorption figure in the past five years. Over the past year, demand has risen to 660,000 SF, the highest annual figure since 2017. 


The East Bay’s retail market recorded positive demand figures in 2023 for the first time in four years, and availability fell below 4%. The market had not recorded more than one year of negative net absorption for the balance of the 21st century. Poor demand during this time runs counter to national trends, which saw an increase in consumer spending and improving retail margins. The return of tenant interest in 2023 is likely tied to the retention of the market’s population; many left the area during the lockdown and in subsequent periods, but that trend has halted, increasing retailer perception of the market. Over the past year, net absorption reached 660,000 SF, and the availability rate fell to 5.6%.


Geographically, the 320,000 SF currently under construction is distributed throughout the suburbs, with the largest projects located south and east of the urbanized areas of Oakland and Berkeley. New construction poses little risk to the East Bay’s availability, as new developments will add just 0.3% to market inventory, 95% of which will deliver occupied. The few projects that will come to market vacant are typically ground-floor retail of a mixed-use development, typically multifamily. The only new shopping center underway in the market is the aforementioned Plaza Gale Ranch.

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*Source: CoStar

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