Lately, it feels like we are all not-so-patiently waiting at the edge of our office chairs, anticipating a trendy AI company or prominent tech giant to announce their expansive new office lease of 100,000 square feet or more. Such a move would reignite a frenzy of leasing activity across the Oakland office market. However, another law firm in its place, Wilshire, signed a 4,764 square foot lease at 475 City Center—a Class A asset that recently lowered its rental rate to $3.50/FSG. Similarly, Smith Currie & Hancock LLP recently signed a 3,146 square foot lease at Lake Merritt Plaza, another Class A asset boasting a free gym and lively tenant engagement program.
The services industry is currently capitalizing on its premier option in an office market with a 20.4% vacancy rate. But don’t the circumstances feel all too familiar? What does the future hold for the next generation of landlords?
Backed by data from the Colliers Research team and narrated by Oakland’s tenant and landlord representative broker, Anthony Shell, we extensively explore the ebbs and flows of leasing activity among services and tech industries since Colliers established their roots here in Oakland in 2003. Our team has identified three significant activity tranches defining trends in rental rates and demand cycles throughout the East Bay’s leasing history: the Services Sector Surge, Tech Expansion, and the Work From Home Era.
Services Sector Surge (2012-2014)
The office market began to recover in 2012 from the financial crisis that consumed our US economy between the late 2007s and early 2010s. At this time, Class B offices were attractive for investors, targeting value-add opportunities through space renovations and lower acquisition costs, making them accessible to a broader investor base. This notion coincided with non-profit and professional services industries seeking flexible and cost-effective office space, with an average rental rate of $2.80 per sq. ft., thus creating Class B demand.
Tech Expansion (2014-2018)
The services industry’s demand for office space slowed as tech giants entered the market, saturating a thriving Class B environment. Tech companies were determined to lease space in Oakland due to cheaper rental rates and an overly crowded San Francisco office scene. Uber, Pandora, Navis, and Kaiser’s IT division were among those that made the move. It was also convenient for tech employees looking to settle down in the East Bay to raise a family. As a result, 2015 saw the fastest increase in office rental rates since the dot-com bubble in 2000, reaching an average rental rate of $3.16 per sq. ft. across all asset classes.
Work From Home Era (2020-2024)
The global pandemic in 2020 halted a historic high average rental rate of $5.41 per sq. ft. Tech CEOs and other company executives have been in a return-to-office tug-of-war with their employees, which has stifled demand—paving the way for services-based industries to shop comfortably in the current office market at an average rental rate of $4.29 per sq. ft. across all asset classes. Rising inflation and increased rates have pigeonholed landlords into driving more money into their maturing loans because they cannot refinance. Consequently, many buildings must now be reinstated by their respective lenders: 360 22nd St, 1440 Broadway, 1700 Broadway, 1901 Harrison, 2100 Franklin, and 180 Grand, to name a few.
Download the Historic Rental Rate Infographic Here.
Next-Gen Landlord (2024 and beyond)
As we enter the summer of 2024 and look to the future, the critical question remains: how much lower will landlords need to reduce rental rates to attract tenants and revive leasing activity? How many companies will require their employees to return to the office? The outcome will undoubtedly shape the future of the Oakland market. Colliers’ leasing team predicts further rent deterioration, dropping to $3.00-$3.50 FSG market-wide by the end of this year.
To highlight the positives, Downtown Oakland BART (including Lake Merritt, 12th St, and 19th St stations) has yet to see a year-over-year ridership decrease since early 2021. As of May 2024, an average daily ridership of 12,340 demonstrates that the daily commute to metropolitan cities is still substantial across the Bay Area. This is the highest weekday ridership since October 2023 and the third-highest weekday ridership since March 2020. Retail is also making a comeback and has witnessed positive absorption over the last four quarters—the first four consecutive quarters of positive net absorption since 2017-2018. New retailers like Horn Barbecue and The Salty Pearl and reopening’s such as Tribune Tavern, Cafe Gabriela, and Brewja Coffee contribute to this positive trend.
Although it may feel like we are in the commercial real estate twilight zone and the services industries have re-emerged as the front-runners in the limited market leasing activity, as the cycle predicts, tech (and AI) companies should follow suit. The Oakland office market has faced adversity at various points in history. However, these latest metrics are encouraging and suggest that downtown retail owners, services-based industries, and Bay Area commuters lead the charge toward a restored business climate and a promising future.
Colliers’ research and leasing teams are prepared to deliver the latest market trends to help you navigate this evolving office landscape. For more in-depth insights, please contact Anthony Shell, David Goldberg, and Benjamin Lewis directly.