Oakland Industrial Construction Down 50% From 2020

Industrial demand continues to grow, and developers are having a hard time keeping up. In Oakland, there was 2.3 million square feet of industrial completions last year, roughly half of the completions in 2020, according to research from Marcus & Millichap. The completions were enough to increase the industrial supply by 1%, but not enough to keep up with rising demand.

The report expects development activity to ease once again in 2022, even as demand continues to rise. In Oakland, this demand will stem from major tech companies welcoming employees back to the office, and therefore back into the city. According to the report, these employees are ferocious consumers of delivery services, generating a need for warehouse and distribution space.

Supply chain challenges in San Pedro Bay port system could also fuel more need for warehousing space in Northern California. The Port of Oakland can accommodate ships waiting in line to unload off the coast of Southern California. The Port experienced a similar backlog early last year, but resolved the problem. While issues in the San Pedro Bay port system have eased, vessels continue to idle off of the coast. Re-routing to Oakland could help to ease congestion, but will create increased industrial demand.

In 2021, Oakland’s industrial rents increased 2.6% and the vacancy rate fell to 6.4%, down 140 basis points for the year. Unlike the strong industrial fundamentals in Southern California, Northern California’s industrial performance has been mixed since the start of the pandemic in 2020, due in large part to exodus from the area.

In the neighboring San Francisco, the industrial vacancy rate was expected to increase 70 basis points to 6.5% in the third quarter last year, per a similar report from Marcus & Millichap. The increase in vacancy is likely related to an active construction pipeline. The report also anticipates that new construction deliveries will total 1 million square feet in the fourth quarter, an increase of 1.5%. As a result, rental rates are also up, climbing 5.4% to $26.98 per square foot. While the growth rate has fallen from 2017 and 2018, the rental rate has steadily grown over the last five years, even through 2020.