Multifamily
Record demand in 2021 helped offset the negative effects on market fundamentals experienced from the onset of the pandemic in 2020 when net absorption ended the year flat. However, renters have increasingly looked to the relatively affordable East Bay since 2021, and its desirable suburban cities to meet housing needs, stabilizing occupancy rates. But new inventory in 22Q3 has applied upward pressure to vacancy, which is currently trending at 7.0%.
Vacancy
Demand for apartments in the East Bay posted a record in 2021, recovering from the slowdown seen in 2020. Although that level has moderated in 2022, a net of 2,800 units have been absorbed over the past 12 months compared to the long-term average of 1,700 units. The vacancy rate is tracking at 7.0% – the five-year average is 6.5% – and new inventory from 22Q3 has applied pressure to the rate.
Demand growth for apartments in the East Bay has been generated through substantial population and employment growth, which outpaced the national average over the past decade. The East Bay leads all Bay Area markets in population growth, having added over 250,000 residents since 2010. In general, the metro has emerged as an increasingly desirable yet still relatively affordable market for housing.
Construction
Multifamily construction activity has been elevated for several years, with over 17,000 units added on a net basis over the past five years. There are currently about 5,700 units in the pipeline, compared to the five-year average of 8,300 units. The current pipeline will add approximately 3.0% to the metro’s inventory.
Most submarkets in the East Bay have experienced at least some development activity, but Downtown Oakland has been the focal point in recent years. Over 6,500 units were completed in the submarket from 2015 through 2021, increasing the submarket inventory by nearly 50%. In addition, Downtown Oakland has experienced an increase in companies establishing a footprint in office buildings in the area. As a result, Oakland is emerging as a friendlier live/work/play environment.
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Office
In the past decade, the East Bay office market has emerged as an attractive alternative to its more costly neighbor San Francisco. In particular, Oakland is emerging as a desirable city in which to live, work, and play and has garnered some increased traction by tech firms. New office development in the East Bay has been moderate over the past decade, especially compared to San Francisco and San Jose. The most significant recent deliveries have been concentrated in Downtown Oakland, with two new office towers helping redefine the city’s skyline.
Leasing
Market vacancy in the East Bay, currently 12.7%, is down slightly from a recent peak of 13.3% in 21Q3 but remains well above a recent low of 8.4% seen in 19Q4. Leasing activity declined drastically at the onset of the pandemic but has slowly increased since, and recent activity has been in line with pre-pandemic activity. This has allowed the vacancy to stabilize in recent quarters despite tenant move-outs as more firms adopt hybrid and remote work strategies.
Construction
Considering East Bay’s minimal historic inventory growth, the recent concentration of development projects in Downtown Oakland has created a relative construction boom in the submarket. Several office buildings initiated construction after securing large prelease tenants. The recently completed 600,000-SF, 24-floor Shorenstein tower, 601 City Center, secured Blue Shield as an anchor tenant in 17Q1. Blue Shield preleased 200,000 SF on the top floors of the building and will be downsizing in San Francisco to save on real estate costs, as many Blue Shield employees already live in the East Bay. The City Center project did deliver with large blocks of space available.
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Industrial
With construction limited, the market’s outlook hinges on prospects for tenant demand. Amazon’s decision to slow its distribution center expansion and even put a few large spaces up for sublease in San Leandro and Hayward has done little to tilt the market in tenants’ favor. All four spaces Amazon has put on the market have already been taken by tenants including modular homebuilder Veev and third-party distributor Dependable Highway Express. At 6.2%, the portion of the market’s RBA currently listed as available for lease (including projects under construction) remains near an all-time low.
Leasing
Considering that available industrial space is near the lowest levels ever recorded in the East Bay, it is impressive that total industrial SF leased has tallied 15.7 million SF here over the past 12 months, up 29% compared to average annual leasing of the previous five years. Third-party distributors have been key contributors to the market’s recent strength, as CEVA, Transpak, and PacPride Distribution have all signed 100,000- to 225,000 SF leases in the East Bay since the start of June 2022.
Construction
Most industrial owners do not need to worry about overbuilding or significant competition from oncoming new supply over the next several quarters. There is 5.9 million SF currently under construction as of 2022q4, representing 2.2% of the market’s inventory, but about half of what is currently underway is already leased or owned by tenants including Tesla, Amazon, PacPride Distribution, and Fedex. The remaining inventory of unleased projects currently under construction is also spread fairly evenly along the I-880/I-580 corridors, in areas such as Fremont, Hayward, and Richmond, meaning that no individual submarkets are being faced with an overwhelming tally of new supply.
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Retail
While many markets across the U.S. have struggled to adapt to the adverse effects of online shopping, market fundamentals in the East Bay were comparatively stable. Retailers in the East Bay have benefited from the region’s substantial economic expansion since the Great Recession. Rapid in-migration, including those priced out of San Francisco, and strong local income growth contributed to robust consumer demand in the 2010s. In addition, the East Bay is anticipated to pace the Bay Area in population growth over the next five years, which should bolster consumer spending.
Leasing
The flurry of move-outs has since settled and marginal declines in vacancies have set in, with the metro rate currently registering 5.3% in 2022q4. This is above the national average of 4.3%, but does remain well below the highs of the Great Recession. A large portion of positive absorption in 2021 was driven by newly delivered Safeway and Floor and Décor properties. Simultaneously, the existing stock of retail in the East Bay actually shed around 600,000 SF in 2021.
Construction
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 periods. 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. Additionally, there is 160,000 SF under construction in the metro. Gyms and supermarkets are the largest projects under construction around the East Bay currently.
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*Source: CoStar
