By Guest Blogger Dane Hooks
Cushman & Wakefield
Massive Migration: Among the Nation’s Hottest Office Markets
In the past few years Oakland has transformed itself into one the nation’s hottest office markets with a significant influx of new companies coming to the East Bay’s largest city. Over a hundred companies have relocated to Oakland from San Francisco since the first quarter of 2012. This massive migration has resulted in the absorption of 1.2 million square feet of commercial real estate space. Notably, the majority of these tenants have migrated to Oakland over the past 18 months.
“One reason for the flood of migration is that the average Class A office asking rents in San Francisco are between 35% and 50% higher than Oakland, depending on where the building is located. “
” In past market cycles it was common to have San Francisco demand affect the Oakland CRE market but the swell of demand in this most recent cycle is uniquely staggering. “
Live. Work. Play. Flourish
The soaring San Francisco rents and subsequent East Bay spillover only tells one part of the story. Downtown Oakland has evolved from an economic alternative to San Francisco, into an exciting, urban, 24/7 live/work/play environment where new companies come to flourish.
” The desire to work near public-transit oriented areas with urban amenities has never been stronger and Oakland has been uniquely positioned to capture these tenants. “
BART (Bay Area Rapid Transit) accessibility has been a significant driver behind many recent migrations since Downtown Oakland is situated in the center of the Bay Area Rapid Transit (BART) network where over 26,700 passengers arrive in Oakland every weekday. If you’re coming from San Francisco, the BART ride is only 12 minutes and many people find it’s sometimes easier to get to some places in San Francisco from Oakland than it is from San Francisco itself.
Diverse Tenant Migration
The migration of businesses to Oakland represents a wide variety of different companies creating a healthy and diverse tenant make up as opposed to the tech-centric San Francisco office market. Here are just a few:
Evolution Bureau – Early last year the 16 year old San Francisco advertising firm relocated its headquarters and 60 employees to a building across the street from the Fox Theatre. Read story here.
99 Designs – The online graphic design marketplace relocated its San Francisco headquarters to a building two blocks from Uptown Station, Uber’s future East Bay location.
The Sierra Club – One of the nation’s oldest and most influential environmental organizations relocated its headquarters to Oakland after 124 years in San Francisco.
Brown and Toland – A physician’s group based in San Francisco signed a 60,000 SF lease in the Clorox building in Oakland in 2015 and took occupancy this year.
Uber – The biggest Oakland real estate event of the decade occurred last year when Uber purchased a 330,000 SF former Sears Department Store office for their future East Bay headquarters. Uber still plans to keep their 700,000 SF San Francisco headquarters but in 2017 they plan move 2,500 to 3,000 employees to Oakland which will make them the second largest employer in Oakland after Kaiser Permanente.
“The influx of these new tenants, among others, has driven Oakland’s office vacancy to the one of the lowest in the nation.”
Homegrown companies such as Pandora and Blue Bottle Coffee have continued to expand aggressively within Oakland over the last two years adding to the historically high tenant demand.
Supply & Demand Imbalance
Despite this sustained tenant influx and record low vacancy, there are currently no new office projects under construction in the entire CBD creating a significant supply and demand imbalance. This imbalance is why Oakland office rents are expected to continue to reach new highs going forward. In fact, in a recent national presentation, it was mentioned that Oakland has seen the largest increase in asking rents over the past year than any market in the U.S.
There hasn’t been any Class A buildings constructed since 2007 in the Oakland Central Business District,. However, over 10 Class B buildings traded hands in 2015 totaling more than 1 million square feet.
“Demand for “Creative Space” has caused Class B rents in Oakland CBD to double in 3 years.”
The Coveted Creative Space
The office space creating the most demand is no longer the Class A high rise, but the historical Class B building, where “creative” space can be created with high and exposed ceilings and an open collaborative floor plan.
The new, more sophisticated set of Oakland landlords all have plans to extensively renovate their buildings into “creative” office product. Because there is so much demand for “creative” space and so little supply, the Class B rents in the Oakland CBD have doubled in less than 3 years, creating a challenging real estate environment for tenants and brokers to navigate.
One of the biggest changes for Oakland over the past several years is the fundamental change in its perception to a desirable live/work/play urban environment.
” Oakland’s momentum in the office market has never been stronger and the further arrival of exciting companies will continue as Oakland’s newfound vibrancy grows. “
Guest Blogger Dane Hooks is a commercial real estate broker specializing in representing office tenants in the East Bay and throughout the entire Bay Area. He also represents landlords and currently has over 2 million square feet of office space listed in the East Bay. Included among his major projects are 601 City Center (600,000 SF development by Shorenstein) and 1330 Broadway and 2201 Broadway (Major repositioning projects by TMG Partners). He was awarded the CoStar Power Broker distinction in 2013, 2014 & 2015. In both 2013 and 2014, Dane was a San Francisco Business Deal of the Year Finalist.