Market Updates

East Bay Market Report July 2023


Despite leading the region in population growth in recent years, the East Bay still offers more affordability than its cross-bay rivals of San Francisco and San Jose. For these reasons, some structural demand in the form of well-paid renters fleeing east across the bay is solidifying. New projects are thus generally aimed at higher-income renters, concentrated in and around BART rail stations for accessibility to regional job nodes.


As of the third quarter of 2023, a net of 850 units have been absorbed. Vacancies are trending to 7.5%. Downtown Oakland has seen the metro’s highest number of units absorbed in the last 12 months. This is likely due to a boomerang effect that took shape, pushed by base effects from the fleeing of renters during the pandemic. Some have now returned to the central portion of the city, seeking re-opened services and leasing incentives. This, coupled with the East Bay’s suburban and generally less dense character has allowed the metro as a whole to generally keep pace with the neighboring titans of San Francisco and San Jose.


Over 19,000 units have been added on a net basis over the past five years in the East Bay, with another 5,300 units underway as of the third quarter of 2023. The current pipeline will expand the metro’s inventory by another 2.8%. Several development projects have been underway in Downtown Oakland with several companies establishing office footprints in the area. As a result, it has emerged as a friendlier live/work/play environment. Fremont/Newark has also seen plenty of construction activity, gaining momentum as tech tenants from the South Bay move in and the development of Silicon Valley’s BART extension progresses.

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The East Bay office market has been hit hard over the past several years. The vacancy rate has risen dramatically over the past three years as leasing activity cooled and numerous tenant moveouts resulted in occupancy losses. The market still faces considerable headwinds, as seen in the 0.9% increase in vacancy over the past year, reaching 13.8%, equalling the previous peak set in 11Q1.


Market vacancy in the East Bay is currently 13.8%, the highest point since 11Q1. Leasing activity declined drastically at the onset of the pandemic but has slowly increased since. Still, recent activity has slowed once again, resulting in another 0.9% increase in vacancy over the past year. Leases have been noticeably smaller in the first half of 2023. Over the past year, 11 leases of more than 25,000 SF have been signed in the market. All but two were signed in 2022.


There is relatively little active construction in the market. Only 54,000 SF of construction is underway, and more than half of that figure comes from a single building underway in Fremont. Located at 39150 Fremont Blvd, the 35,000 SF property broker ground in late 2021 with an estimated completion of late 2023 and will be entirely occupied by Fremont Bank upon completion. Development levels will stay low for the foreseeable future as availability remains too high to justify adding inventory to the market.

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With significant construction coming online, the market’s outlook hinges on prospects for tenant demand. Leasing activity remained strong throughout 2022, but most of the largest deals were signed in the first half of the year. A general slowdown in leasing activity is expected as increases in interest rates and fear surrounding a slowing economy grow.


Activity in early 2023 has been notably smaller as leases have struggled to push past 200,000 SF in size. Retailers are still active in the market; however, most manufacturing-related leases in recent months have come from firms in the electric vehicle or renewable energy infrastructure sectors. The diversity of occupiers bodes well for the market overall. High levels of development put the market at risk of oversupply as occupier demand slows with the overall economy and the Port of Oakland struggles to return to the same volume that it enjoyed prior to the pandemic and subsequent drop off in the number of containers processed. 


The 4.3 million SF under construction is one of the highest levels of construction since 2019. However, as demand weakens, there is a risk of oversupply. Luckily, the majority of projects currently underway have already been leased or are owned by tenants.  The balance of construction activity is mostly for smaller buildings. Of the 20 buildings currently underway in the market, 15 of them are less than 200,000 SF. Additionally, the properties under development are almost exclusively located proximate to the market’s waterways, indicating that large-scale distribution centers are located further east in either the Stockton or Modesto markets.

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Annual retail rent growth continues to improve in 2022, off the lows seen in 2020, and average rental rates are above pre-pandemic levels. East Bay rent growth averaged nearly 3.1% year-over-year gains for the past decade but has failed to meet those levels recently, down -3.1% over the past year. The effects of the pandemic brought significant operational challenges for many retail tenants leading to slowing leasing activity and negative net absorption.


The metro rate is currently registering 5.3% in 2023Q3, despite negative net absorption over the past year of -6,000 SF. While new annual leasing activity is registering around 80% of pre-pandemic levels, making it challenging to recoup occupancy losses, especially quickly, a few outsized deals were completed recently. In 23Q1, 99 Cents Only Stores leased 24,000 SF at Somersville Center in Antioch, and Grocery Outlet took 21,400 SF at Shamrock Village in Dublin.


Supply additions have been measured in the East Bay Metro, and the lack of construction is a silver lining that has kept market vacancy under control for the past few years. Some developers were active before the pandemic, with large-scale projects concentrated in affluent suburban areas like Walnut Creek, Dublin, San Ramon, and expanding suburban areas like Brentwood. Currently, there is only 260,000 SF under construction in the metro, adding 0.2% to inventory.

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*Source: CoStar

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