By Molly Herrick, Research Market Director, East Bay
New Construction Continues to Drive Activity
Job growth in the East Bay, which is comprised of Alameda and Contra Costa counties, picked up in the third quarter of 2016, increasing by nearly 20,000 since mid-year. This brings the total number of positions added to just over 30,000 in the last 12 months representing a +9.7% increase. Despite employment gains, the unemployment rate has ticked up a modest 30 basis points (BPS) across the same time period to 4.8% from 4.5%.
The Tech Hub
The Bay Area region has attracted huge amounts of in-migration over the last several years; in large part due to its draw as a premier technology hub. The East Bay has a growing reputation as a desirable place to live with increases to the labor force being significant.
Thus, the uptick in the unemployment rate is due principally to an influx of new residents in the area, rather than paltry employment statistics.
Though both apartment rental rates and home pricing have seen an upsurge in recent years, the East Bay remains an up-and-coming area that is one of the more relatively affordable places to live in the region. Consequently, the East Bay will continue to draw residents from other parts of the Bay Area and beyond.
Overall vacancy in the I-80/I-880 Corridor industrial market remains near historically low levels, ending the third quarter of 2016 at 2.0%. This represents a 40 BPS uptick from 1.6% the previous quarter and is up just 10 BPS from 1.9% at the beginning of the year. Vacancy here has consistently been below the 5.0% mark since the beginning of 2014. By subtype, warehouse vacancy is presently 1.7%, up from 1.4% quarter-over-quarter, and manufacturing vacancy is 2.2% compared to 1.8%.
Correspondingly, the market saw a modest 172,000 square feet (SF) of space returned to the market during the quarter, which occurred in the manufacturing sector. Though vacancy ticked up 30 BPS for warehouse product, net absorption was positive 48,000 SF due in large part to the delivery and subsequent leasing of the 269,000 SF building at Silicon Valley Logistics Park in Fremont.
Though the manufacturing subtype saw pre leasing activity when SAS Automotive leased 143,000 SF at OMP Eureka Landing in Newark, this positive impact on occupancy was not sufficient to eclipse space givebacks; thus, quarterly net absorption tallied to -220,000 SF.
Despite net occupancy loss in the third quarter, absorption totals for the year remain strongly positive at 1.7 million square feet (MSF). During the second quarter, over 1.9 MSF of space was absorbed, much, but not all, in new development, an astonishing amount considering how little space there was available.
However, given supply constraints, we do anticipate the bulk of occupancy growth will necessarily be in newly developed product going forward. In addition, vacancy will likely remain at extremely low levels in the foreseeable future.
Molly Herrick is the Research Market Director, East Bay for Cushman & Wakefield. Based in Oakland, CA, Molly has nearly ten years of experience working in a variety of research related positions within the commercial real estate niche.
Previously with real estate firms DTZ and Colliers International, her resume includes extensive work as a research analyst and economic data interpretation. Molly earned her Bachelor of Arts Degree from Hampshire College in Amherst, Massachusets.