Multifamily
Multifamily leasing in the East Bay has been consistent since the start of 2023. Over the past year, net absorption has reached 3,100 units, ahead of the 20152019 average of 1,100 units. Demand has been overwhelmingly concentrated in the market’s high-end inventory, as 4 & 5 Star properties have recorded 2,900 units of absorption over that period. Consistent demand has put downward pressure on the vacancy rate, which rests at 7.0%, falling by 40 basis points over the past year.
Vacancy
At the end of Q2, 3,100 units have been absorbed on a trailing 12-month basis. For reference, the prior decade average was 1,900 units, with a cycle peak of 6,900 units in 2021. Vacancies have fallen slightly to 7.0%, reflecting a one-year change of -0.4%. A dwindling supply pipeline and slowing apartment starts could allow downside pressure on vacancies to form if leasing breaks out to the upside.
Construction
Construction activity in the East Bay has slowed since 2020. Today, there are 4,100 units underway, increasing the market’s inventory by 2.1%, pushing the market to almost 200,000 units.
Construction starts have dwindled, and no new projects have broken ground over the past six months. Regional developers have cited numerous reasons for this slowdown, including negative rent growth and high construction loan costs. According to debt brokers, interest rates on construction debt can reach as high as 10%. The lack of development could result in a supply shortfall in two to three years.
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Office
The East Bay office market is struggling to adapt to the new realities of the office market. The market has been looking for new footing since the shock of 2020. Tenants looked to the region to grow near San Francisco at a lower cost. As occupier demand dried up across the bay, excess space in the East Bay was no longer needed, and the market’s tech, professional services, and life sciences have all given back large blocks of new space.
Leasing
The East Bay saw 500 fewer leases signed in 2023 than the pre-pandemic period. At the same time, lease sizes have shrunk by more than 40%; both figures are far greater than national trends. Market vacancy in the East Bay, currently 14.6%, the highest point since 11Q1. Sourcing tenants has become extremely difficult, and net absorption has fallen to -1.8 million SF, with negative activity concentrated in 4 & 5 Star properties. Oakland has not been immune to the downsizing and relocating that is prevalent across the nation. Tenants are taking the opportunity to reevaluate their space requirements. As a result, many occupiers are giving back between one-third and one-half of their space and relocating within the market.
Construction
As expected, there is very little active development with only 0 SF under construction. This comprises two buildings, the largest of which is the Fremont Bank building, a 35,000 SF 4-Star property scheduled to be completed before the end of 2024. Both 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 14.6% is far too high to justify adding inventory to the market anytime soon. Additionally, construction financing costs have risen with interest rates, necessitating higher lease rates than in 2019, when office rents have compressed.
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Industrial
Leasing
The East Bay struggled to maintain its tenant base in 2023, posting negative net absorption in the year’s final three quarters. Over the past 12 months, demand fell to-4.7 million SF, with significant negative totals in both flex and logistics space of -1.0 million and -3.0 million SF, respectively. Move-outs were concentrated in the market’s older inventory. Of the 28 new vacancies in the past year, the buildings were an average of 31 years old. Older inventory typically does not meet the clear height and loading standards many large logistics and distribution firms require. The East Bay faces considerable headwinds in the near term. The vacancy rate rests at 7.2%, increasing by more than 200 basis points over the past year.
Construction
The East Bay has a total of 3.1 million SF under construction, equating to a 1.1% increase in market inventory. More than 60% of that inventory will deliver vacant, putting further upward pressure on the vacancy rate. Total under-construction inventory had decreased since 22Q3 when 6.7 million SF was underway. As active projects deliver, fewer new ones are breaking ground. Construction starts failed to reach 1 million SF in 2023, the lowest total since 2012. and no projects broke ground during 24Q1.
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Retail
The East Bay retail market has struggled to absorb the impact of the loss of population and employment, and retail fundamentals reflect a lack of confidence in a quick turnaround. A declining population and falling retail sales have given landlords little leverage to push rents down by -0.2% year-over-year. .The retail sector is positioned for a slow recovery as the East Bay slowly brings people and employers back to the region. The market has long been closely tied to San Francisco across the Bay, and the lack of spillover demand of residents and occupiers will hamper recovery in the coming periods.
Leasing
The East Bay’s retail market recorded positive demand figures in 2023 for the first time in four years, but availability remains elevated at 5.8%. Poor demand runs counter to national trends, which saw increased consumer spending and improved retail margins. The return of tenant interest in 2023 was tied to the retention of the market’s population; many left the area during the lockdown and in subsequent periods, but that trend has reversed, improving the market perception. Over the past year, net absorption reached -430,000 SF, and the availability rate has held at 5.8%.
Construction
The market has lost retail inventory in 2020 and again in 2022, leading to a decrease of -65,000 SF in inventory over the past five years. More recently, the market has started to expand as 61,000 SF has come to market over the past year. Recent deliveries are primarily small, build-to-suit properties. Five buildings were completed in 2024, none of which reached 6,000 SF. Of that figure, only 3,800 SF is available for lease.
CoStar’s forecast points to a slight construction increase in the market in the coming years. Very little is currently under construction, and no projects have broken ground since late 2021. Elevated construction costs, high interest rates, and a lengthy entitlement process all work to slow development throughout the market, and fundamentals do not merit significant investment in new projects.
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*Source: CoStar
