Multifamily
In the last months of 2024, the East Bay was seeing higher absorption and falling rents as the market adjusted to the elevated levels of new supply delivered over the past five years.
Vacancy
The East Bay market is a little ahead of the national market in the cycle. The delivery pipeline and vacancy rate peaked in the East Bay in 2022. Since then, vacancy has steadily decreased as the new product has been absorbed.
Over the past 12 months, East Bay absorption has been strongest in the 4 & 5 Star category. Most new construction has delivered units in these luxury/premium properties, and the higher absorption is evident in these properties leasing up. As of the first quarter, annual net absorption was 3,400 units, of which 2,500 were in 4 & 5 Star buildings. This trend has also resulted in a notable decline in the vacancy rate for 4 & 5 Star buildings, which currently stands at 10.3%, having reduced by 240 basis points over the past year.
Construction
At the end of 2024, 2,500 units were under construction, increasing the market’s inventory by 1.3% and pushing it to almost 200,000 units. Projections for 2025 show deliveries falling to around 1,200 units. 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
At the end of 2024, the East Bay office market continued to feel the impact of weak demand. While new leasing activity had increased slightly from the low point of 2023, it remained substantially below the average levels seen in the five years leading up to the pandemic.
Leasing
The vacancy rate continued to rise, reaching 15.4% in Q4 of 2024. Unleased space is most prevalent in the submarkets with the highest concentrations of office buildings, including Downtown Oakland, Walnut Creek, and Bishop Ranch, where the vacancy rate exceeds 20%. The office vacancy rate is lowest in the market’s urban corridors, where a greater diversity of uses, whether industrial or residential, appears to support higher demand for office uses. Moreover, demand remains strong for single-tenant office buildings, where vacancy remains in the low single digits.
In past decades, the East Bay office market has moved in step with San Francisco and Silicon Valley. An increase in leasing in San Francisco in 2024, led by AI companies, provides hope for a future turnaround for the East Bay. However, until that occurs, the outlook for the East Bay is rising vacancy in the year ahead.
Construction
Without the influence of the growing tech industry, the East Bay has seen a much lower level of office construction than elsewhere in the Bay Area. Only around 4.5 million SF of new office space has been added since 2010, with an increase in total inventory of just 4% over the past decade. Office construction is expected to remain tepid, except for the occasional build-to-suit property.
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Industrial
The East Bay industrial market weakened in 2024 as the recent economic slowdown impacted tenant and investor demand for the region’s commercial real estate. Leasing volume shrank in 2023 and remained low in 2024. Meanwhile, tenant move-outs have increased in size and number, causing vacancies to rise.
Leasing
Leasing volume has been muted in 2024, with around 2 million SF of new leases signed in each of the first three quarters of the year. The average lease size is much smaller in 2024 than in previous years. The average logistics lease is 12,100 SF in 2024, compared to around 20,000 SF over the past decade. The average flex lease is 6,300 SF in 2024, compared to 10,000 SF over the past ten years.
Not only is leasing activity down, but there has been an increase in tenant move-outs. In the logistics segment, tenants had moved out of 8.5 million SF of space in 2024 as of the fourth quarter. By comparison, tenants have moved into around 5.4 million SF, resulting in negative net absorption of over 3 million SF, a level last seen during the Great Recession.
Construction
Construction activity has slowed in the East Bay in the past two years. At the end of Q4 2024, 2.4 million SF of new industrial space was underway. The largest project is the 900,000 SF expansion of the Bayer campus in Berkeley, scheduled to be completed in 2025. Most of the remaining space underway is speculative and currently unleased. That includes three manufacturing buildings totaling 500,000 SF in Fremont, two 220,000 SF distribution centers, and three warehouse properties of less than 70,000 SF.
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Retail
The East Bay retail market has struggled to absorb the impact of the pandemic-era loss of population and employment, and retail fundamentals reflect a lack of confidence in a quick turnaround. The retail sector is positioned for a slow recovery as people and employers return to the region. The market has long been closely tied to San Francisco across the Bay, and residents and occupiers’ lack of spillover demand will hamper recovery in the coming periods.
Leasing
In 2024, the East Bay’s retail market recorded weaker demand after a strong 2023. In the first quarter, availability remained elevated at 5.7%. Soft demand runs counter to national trends, which saw increased consumer spending and improved retail margins. Over the past year, net absorption reached 79,000 SF.
Tenant demand has been uneven, and certain pockets have outperformed others. Two submarkets have topped 100,000 SF in demand in the past year: Hayward/Castro Valley and Newark. Historically strong performers like Dublin, Pleasanton, and Livermore have struggled to keep pace, posting negative net absorption totals over the past year. Leasing activity for 2024 reached 1.5 million SF in December.
Construction
More recently, the market has started to expand as 140,000 SF has come to market over the past year. Recent deliveries are primarily small, build-to-suit properties. Eight buildings were completed in 2024, none reaching 6,000 SF, except for a 162,000 SF new Costco at 350 Newpark Mall in Newark.
Geographically, the 330,000 SF currently under construction is distributed throughout the suburbs, with the most prominent projects located in San Ramon and Newark. New construction poses little risk to the East Bay’s availability, as new developments will add 0.3% to market inventory, 95% of which will deliver occupied.
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*Source: CoStar
