R&D Market Snapshot East Bay Oakland • Fourth Quarter 2013
Market Tracker *Arrows = Current Qtr Trend
Vacancy 19.6%
Net Absorption (52,007) SF
Deliveries 0 SF
Asking Rent $0.88 NNN
R&D Market Shows Positive Signs in 2013 The good news for landlords? Over the course of 2013, R&D vacancy levels in the East Bay/Oakland marketplace reached the lowest levels that we have recorded since Q2 2002. The bad news? Vacancy at that time stood at 15.2% and has been lodged above the 20% mark for most of the past decade. The I-80/I-880 Corridor R&D market saw vacancy drop as low as 19.4% in Q3 2013, though it ticked back up to 19.6% to close the year.
EAST BAY OAKLAND R&D Economic Indicators Q4 13
Q4 12
1.217M
1.213M
East Bay Unemployment*
6.8%
8.2%
U.S. Unemployment
7.2%
7.8%
U.S. CCI
74.2
70.4
East Bay Employment*
*East Bay includes Alameda & Contra Costa Counties
Net Absorption 1,000
Square Feet (000s)
800 600 400 200 0 -200 -400 2009
2010
2011
2012
2013
Vacancy 10-Year Average 24%
Recovery for the East Bay’s R&D marketplace has been slow at best. After peaking during the recession at 23.7% (Q2 2009), it has moved downward slowly and haltingly. Though it crept back up in Q4, the consistent declines it posted over the first nine months of 2013 marked the first three quarter stretch of consecutive vacancy declines that the market has recorded since 2007. One year ago, R&D vacancy stood at 20.4%. Over the past twelve months, the marketplace has recorded over 275,000 square feet of occupancy growth, far outpacing the 2,000 square feet of positive net absorption posted in 2012 but also well below the 921,000 square feet of expansion that took place in 2011. Regardless, though this is the third consecutive year that the market has posted occupancy growth, it has only been in 2013 that we have begun to see a consistent pattern of declining vacancy come into focus. Even in the strong growth year of 2011, occupancy gains were mostly driven in just one quarter while two quarters posted significant increases in vacancy. But even while the majority of 2013 was marked by gradually increasing tenant demand, consistent leasing activity and falling vacancy, Q4’s slight uptick in vacancy demonstrates that the market still faces some challenges. Over the course of Q4 2013, vacancy increased from 19.4% to 19.6% as just over 52,000 square feet of space was returned to the market. That being said, leasing activity remained fairly constant. We tracked total deal activity of 697,000 square feet—gross absorption over the first three quarters of the year averaged 713,000 square feet per quarter. The uptick in vacancy posted in Q4 did not come about as a result of slowing demand, but a few large space givebacks which were largely limited to just one submarket. Nearly all of the negative absorption for the quarter occurred in Fremont, where several sizeable spaces went vacant. The largest of these spaces was 73,000 square feet at 47451-47475 Fremont Boulevard. Despite this setback it is critical to note that Fremont was also accountable for over 75% of all occupancy growth this year. Fremont had active second and third quarters where occupancy growth totaled 431,000 square feet combined. The San Leandro submarket— though relatively small—also performed notably this year. Vacancy here now stands at 12.4% (well below the market average) and continues to trend downward. We expect moderate growth in 2014. Rapidly tightening vacancy and increasing rental rates in the Silicon Valley and Peninsula markets should drive greater tenant demand and activity.
23%
Highlights:
22% 21%
• Vacancy has decreased to 19.8% at year-end 2013 from 20.4% last year.
20%
• Strength in the user sale market persists; two large deals closed in Q4.
19%
• The Fremont trade area provided the greatest boost to the market this year with 155,000 square feet of occupancy growth in 2013
18% 2009
2010
2011
2012
2013
• Asking rental rates have remained relatively flat for the past six quarters and are presently averaging $0.88 per square foot (on a monthly triple net basis). • We expect stronger market demand going into 2014; look for consistent declines in vacancy next year with rental rate growth returning to the marketplace as vacancy begins to fall below the 15% plateau. www.cassidyturley.com
R&D Market Snapshot East Bay Oakland • Fourth Quarter 2013
Asking Rental Rates Remain Stable The average asking rental rate has remained relatively flat over the past six quarters and is presently $0.88 per square foot (on a monthly triple net basis). Rents are up 10% from Q4 2012 when the average stood at $0.80. However, they have yet to return to pre-recession levels when they peaked at $1.10 per square foot. We anticipate average rents will remain at or near their present levels until we see vacancy decrease below 15% and larger blocks of space are leased up. Though this will likely not occur until late 2014 or early 2015, demand from the Peninsula and Silicon Valley may put upward pressure on rents for the highest quality space in the Southern I-880 Corridor trade areas, such as Union City, Newark and Fremont, from users looking for quality space at lower rents. Rapidly tightening vacancy rates in these neighboring markets has caused considerable rental rate growth there in 2013 and is expected to continue to do so in 2014.
EAST BAY OAKLAND R&D R&D Sales $1,000
50
$800
40
$600
30
$400
20
$200
10
User Sales Return in the Fourth Quarter User sales picked up again in the final quarter of 2013 following a third quarter lull. The two largest user transactions this quarter were both sales in the Fremont trade area. Genmark Automation purchased a 86,000 square foot building at 46723 Lakeview Boulevard in the largest transaction of the quarter, while Synnex Corporation bought a 65,000 square foot R&D building at 44217 Nobel Drive.
0
$0 2009
2010
2011
2012
Sales Volume, $Mil
2013 # Bldgs Sold
Average Asking Rate $1.10 $1.05
Though the average lease size was smaller than in previous quarters this year, there were a handful of larger lease deals transacted in Q4 2013. The largest lease transaction of the quarter was Stryker’s renewal at 47421 Bayside Parkway in Fremont which totaled 46,000 square feet. PCS inked the largest new lease of the quarter at 48633 Warm Springs Boulevard in Fremont for three years. This space had been on the market for over seven years and contributed 35,000 square feet to occupancy growth this year.
$1.00 $0.95 $0.90 $0.85 $0.80
Key Lease Transactions Fourth Quarter 2013
$0.75 2009
2010
2011
2012
2013
Availabilities by Size (SF)
10-25K
25-50K
50-100K
PROPERTY
SF
TENANT
TRANSACTION TYPE
SUBMARKET
47421 Bayside Pkwy
45,576
Stryker
Renewal
Fremont
48633 Warm Springs Blvd
35,360
PCS
Relocation
Fremont
47281 Bayside Pkwy
23,436
Avocent Corporation
Renewal
Fremont
3825 Bay Center Pl
19,315
Tyco Electronics
Relocation
Hayward
47703 Fremont Blvd
19,262
Cynosure, Inc
Renewal
Fremont
20991 Cabot Blvd
19,019
Corrpro Companies
Relocation
Hayward
48810 Kato Rd
16,035
Telepath
Relocation
Fremont
32920 Alvarado-Niles Rd
15,208
Amber Kinetics
Relocation
Union City
40539 Encyclopedia Cir
10,424
Lightbridge, Inc
Relocation
Fremont
650 Whitney St
10,281
Methods Machine Tool
Relocation
San Leandro
100K+
www.cassidyturley.com
Cassidy Turley R&D Market Snapshot East Bay Oakland • Fourth Quarter 2013
INVENTORY
SUBLET VACANT
DIRECT VACANT
VACANCY RATE
CURRENT NET ABSORPTION
YTD NET ABSORPTION
UNDER CONSTRUCTION
AVERAGE ASKING RENT (ALL Classes)
Submarket Berkeley
849,998
0
13,763
1.6%
0
0
0
$1.55
Emeryville
1,733,312
0
3,280
0.2%
0
6,719
0
$1.45
San Leandro
1,139,126
4,988
136,391
12.4%
21,966
57,621
0
$0.59
Hayward
3,983,678
50,400
570,843
15.6%
70,651
(62,884)
0
$0.72
922,970
0
227,765
24.7%
(32,007)
4,215
0
$0.79
Union City Newark
2,787,473
105,362
569,951
24.2%
9,945
57,181
0
$1.23
Fremont
20,466,894
380,872
4,180,649
22.3%
(122,562)
212,549
0
$0.86
TOTAL
31,883,451
541,622
5,702,642
19.6%
(52,007)
275,401
0
$0.88
*R&D asking rates converted to NNN
Key Sale Transactions Fourth Quarter 2013 PROPERTY
SF
BUYER
CITY
SALE TYPE
46723 Lakeview Blvd
86,118
Genmark Automation
Fremont
Owner/User
5020 Brandin Ct
76,599
Dutra Realty Enterprises
Fremont
Investor
44217 Nobel Dr
65,332
Synnex Corp
Fremont
Owner/User
45719 W Northport Loop
22,022
Deanza Tile
Fremont
Owner/User
R&D Submarkets East Bay Oakland
Molly Herrick Research Analyst
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Managing Editors:
About Cassidy Turley
represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm completed transactions valued at $22 billion in 2012, manages approximately 400 million square feet on behalf of institutional, corporate and private clients and supports more than 23,000 domestic corporate services locations. Cassidy Turley serves owners, investors and tenants with a full spectrum of integrated commercial real estate services—including capital markets, tenant representation, corporate services, project leasing, property management, project and development services, and research and consulting. Cassidy Turley enhances its global service delivery outside North America through a partnership with GVA,
Garrick Brown Director of Research Garrick.Brown@cassidyturley.com The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. Copyright © 2013 Cassidy Turley. All rights reserved.
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