OAKLAND, CA—The East Bay's role in the Bay Area economy is changing fast. The once-second choice to San Francisco and Silicon Valley is attracting increasing attention as those metros hit historic peaks.
“Investor interest in Bay Area skyline assets is strong with domestic institutional and foreign investors chasing quality assets that provide stable value, especially in San Francisco and Oakland,” said Will Connors, managing director, JLL Capital Markets.
One trophy example is KBS Strategic Opportunity REIT II's recent purchase of Oakland City Center, comprised of 505 14th St. and 1300 Clay St., for $155 million. The 14th Street location consists of 12 stories in 172,273 square feet, while the 1300 Clay Street location stands 11 stories tall with 195,084 square feet. The properties were constructed in 1985 and 1990, respectively. The two steel-framed class-A office towers offer a total of 367,357 rentable square feet. The property is currently 92% leased to a diverse collection of approximately 40 tenants, with a majority in legal, finance and government.
“As the Bay Area remains the top market attracting tech talent, we feel this property will serve a supportive office space for professionals entering the area as well as those staying,” says KBS executive vice president Brian Ragsdale.
With a new generation of young professionals entering the area from San Francisco's overflow, 7,500 housing units are planned and under construction within half a mile of the property. City Center offers tenants local advantages such as access to the 12th Street BART station and area freeways.
“The area provides tenants with access to the busiest BART station in Oakland,” adds Michael Potter, KBS vice president.
Steven Golubchik, Grant Lammersen, Tim Walling and David Hosler of Newmark Knight Frank (NKF) represented Rubicon Point Partners and Canyon Capital Realty Advisors in the transaction.
“As Oakland's urban renaissance continues, the new owner is in an ideal position to bring existing tenants to market rents,” said Golubchik. “Historically, Oakland has been a long-time benefactor of spill-over from tenants priced out of San Francisco, however, Oakland has now stepped out of San Francisco's shadow. The class-A vacancy rate in Oakland CBD is less than 4%, the lowest CBD office vacancy in the U.S.”
Since 2011, Oakland has benefited from 1.6 million square feet of inbound migration with a majority coming from San Francisco. The average spread between San Francisco rents and Oakland CBD class-A rents during the last 18 years have been approximately 20%. With today's spread of more than 30%, Oakland offers San Francisco users a compelling value proposition, which is fueling an accelerating in-bound migration, says NKF.
Oakland's supply-constrained office market and strong demand for class-A space has pushed asking rents up 75% since 2012, according to JLL. While vacancy rates are expected to dip below 4% by 2018, several new office developments will bring as much as 1 million square feet of class-A office space to the market in the next two years, GlobeSt.com learns. Developers recently broke ground on 601 City Center, the first new high rise office building in more than a decade, and 1100 Broadway is set to begin construction next year.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
