Oakland
Q3 2023 Office Market Insight
Overview
Smaller scale leasing contributes to market challenges.
- For the second consecutive quarter, Class B assets saw more lease transactions than Class A. In Q3, Class B accounted for 54% of the total, whereas from Q1 2022 through Q1 2023, Class B only accounted for 24% of the total.
- Although transaction volume declined, the average term of the executed leases in Q3 totaled 72.3 months., contributing to the average term increasing to 59.4 months year-to-date. This has increased from the average term in 2022 of 54.5 months.
- Asking rents are starting to show more significant declines to reflect the state of the market. Class A and Class B rents have decreased 6.0% and 21.2%, respectively, year-over-year in Downtown Oakland.
- Please hover over each Oakland Metro submarket to find direct asking rents, vacancy, and net absorption as of Q3 2023.
Occupancy losses accelerated in Q3 with negative absorption amounting to -195,559 s.f., lowering year-to-date occupancy gains to 215,326 s.f. following PG&E's lease commencement in Q1.
Oakland's vacancy rate as of Q3 is 25.4% after increasing 210 basis points over the last two quarters.
City Center's vacancy has increased above 33% after Q3 whereas Uptown sits at approximately 21%.
20% of Uptown's 1.6m s.f. of office vacancy is sublease space.
Class A asking rents sit at $4.95 p.s.f. and Class B rents are $3.65 p.s.f., declining 6.0% and 21.2%, respectively, year-over-year.
As a result, net effective rents have continued marginal declines despite a slowdown in tenant concessions. Tenant allowance concessions are likely to remain flat in many buildings as reduced access to capital limits landlord options to provide turnkey solutions.
Activity
Leasing in Q3 shifted to Uptown with 59% of the total volume. Professional and business services firms signed the most leases, though still predominantly below 10,000 s.f.
While total leasing volume increased approximately 31% quarter-over-quarter, the number of transactions recorded fell to the lowest level seen since Q1 2021. An uptick in full floor leasing drove the increase. Leases greater than 20,000 s.f. constituted 23% of the total, as Delta Dental and East Bay Community Energy expanded their Downtown Oakland footprints. This is the greatest share in the last two years.
However, leasing under 5,000 s.f. remains the most active range and retains an elevated share of 68% of the total transactions year-to-date, as compared to an average of 48.7% over the last three years. Leases less than 10,000 s.f. account for approximately 89% of the total leases signed this year, which has resulted in the average lease size decreasing to approximately 5,900 s.f. this year.
Sublease Market
Sublease availability is 5.1% and 3.4% in Downtown Oakland and Oakland's Non-CBD, respectively.
A few new subleases came to the market in Q3, predominantly in the under 5,000-s.f. range with exception to Sedgwick's 17,300-s.f. space at 180 Grand.
1999 Harrison saw occupancy rise after East Bay Community Energy subleased a full floor this quarter, in one of the largest deals year-to-date. As a result, sublease availability in Oakland remained flat at 5.1% and represents a decreased share of the market's total availability.
As of Q3, sublease availability as a share of total availability fell to 18.3% which is the lowest share since Q2 2020 and the third consecutive quarter it has decreased.
Technology, Health, and Professional & Business Services companies have added the most space to the sublease market.
Downtown Oakland accounts for the majority share of sublease availability in the larger market cluster, with Emeryville and Berkeley accounting for growing shares.
Outlook
Regional office occupancy is anticipated to increase this fall after return to the office mandates from select firms officially commenced post Labor Day. This could result in an uptick of demand and public transit ridership. Early signs of this are seen in Oakland with the number of active tenant requirements increasing 15% quarter-over-quarter and a focus on leasing in proximity to BART stations. However, similar to leasing trends, demand for office space under 5,000 s.f. represents a growing share of tenant requirements.
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Contact
For more information, contact:
Jacob Meyers
Oakland Research
Jacob.Meyers@jll.com
Alexander Quinn
Director of Research, Northern California
Alexander.Quinn@jll.com
