The 52.9-million-square-foot Oakland general purpose, multi-tenant office market improved slightly during the second quarter of 2012. The vacancy rate fell 20 basis points to 18.3% on 78,000 square feet of positive net absorption, and was down 100 basis points from a year earlier. The rate increased to 18.5% in July, but 18.2% is forecast for the end of the year due to 243,000 square feet of annual net absorption, less than in 2011.
The market got a shot of new supply in July when the 160,000-square-foot VF Outdoor Inc. building completed construction in Alameda, but that left the 20,000-square-foot third phase of the Blue Rock Center as the only project under construction. With net absorption picking up and new supply remaining muted, Reis predicts the vacancy rate will drift down to 17.6% at year-end 2013 and 14.1% at year-end 2016. The year-end low for the previous cycle had been 12.2% in 2007.
Rents remain flat. In the second quarter the average asking rent edged up 0.1% to $25.89 psf, while the average effective rent was up a penny at $20.20 psf, up 0.5% and 0.7%, respectively from a year earlier. The July gains were a penny each, and Reis predicts modest gains of around 1.0% for all of 2012. Rents have been weak here since the tech bust following 2000—the current effective average is lower than it had been at year-end 1997. Rents will remain below the level of the late 1990s according to the forecast, but with increases at around 3.5% starting in 2015, Reis predicts the effective average will recover to its 2007 level by the end of 2016.
“East Bay vacancy now stands at 17.7%, only slightly above the 17.5% rate recorded one year ago,” according to Cassidy Turley. “Perhaps most importantly to landlords, rents have remained stable despite the inconsistent growth patterns of the past year.” This source puts the asking average at $25.80 psf.