The office vacancy rate in the East Bay, not including Walnut Creek or further east, ticked up to 18.4 percent at the end of last year, roughly double the vacancy rate prior to the pandemic.
In addition to 4.9 million square feet of un-leased space, the current vacancy rate includes an additional 1.2 million square feet of space which has been leased but is actively being offered for sublet, with an office vacancy rate of 34.1 percent in Oakland’s City Center Core, according to Cushman & Wakefield.
Despite the rise in vacant office space, the average asking rent only inched down eight (8) cents to $4.58 per square foot per month, with East Bay landlords still trying to hold firm on asking rents while offering free rent and build out allowances to reduce effective rents without signaling a mass decline. The average asking rent for Oakland’s Central Business District has, however, dropped around 10 percent from its pre-pandemic high and is trending down.
“Given that vacancy in [Oakland’s Central Business District] has more than doubled…it is surprising that the pricing adjustment has not been more significant, particularly within the Class B and commodity Class A product types. The first factor holding up rents has been a notable flight to quality. To draw employees back to the office, tenants are drawn to the highest quality spaces, and as they often downsize their footprint, they become less price sensitive. The other is landlords’ inability or unwillingness to drop rates. A wave of refinancing and sale activity in the years before Covid-19 have left many landlords at a basis where they are unable to lower rates and still make their investments pencil, even in the face of rising vacancy.”
And once again, the aforementioned trends and landlord challenges aren’t limited to Oakland, as plugged-in people should be well aware. We’ll keep you posted and plugged-in.