Download the 2007 Quarter 4 Bay Area Office Market Report

In the fourth quarter of 2006, Aegis reported “Residential Makes Way for Commercial Development” – and that couldn’t have rang more true through 2007. This year we have seen a dramatic decrease in residential land sales and an active office market with flat overall absorption. With plenty of new construction completed around the East Bay, there is a generous inventory of available space. The first quarter saw a jump in average asking rents but quickly leveled through the third and fourth quarter. Once again, Biotech space is in high demand and offers very little inventory.

With half a million square feet of new space in the East Bay, in an already saturated market, new development hasn’t seen the interest developers were hoping for. Wareham Development, the developer of Emerystation East, has seen the most success leasing over 75% of the 245,000 square feet high-end biotech space. Brandywine, now nearing completion of 210,000 square feet of office space in Downtown Oakland, has had tenant interest but is yet to formulate a deal. Surprisingly, the fourth quarter proved well for Alameda, the only submarket to have positive absorption this quarter. This in due part to San Leandro based Penumbra, a medical device company, inking at deal with Dollinger at 1351 Harbor Bay Parkway.

The office market was inundated with building trades in the East Bay in 2007. The year kicked off with Hines purchasing Watergate, a portfolio consisting of four high-rises and over a million square feet of office in Emeryville. Harvest Properties was the next in line, purchasing Bay Center, three mid-rise buildings totaling 327,000 square feet in Emeryville. Alameda also saw a handful of buildings change hands including Dollinger Properties picking up 172,000 square feet in Harbor Bay and Ellis Partners following suit with the purchase of 65,000 square feet at 1600 Harbor Bay Parkway. It is expected that Oakland will continue to see growth and construction over the next year. Shorenstein has released plans for a new high-rise at the T-11 site, located on 12th Street in City Center. SKS Development is holding on to an entitled office building site located at the corner of 11th and Broadway, adjacent to the University of California Office of the President building.

Overall, 2007 was an active year. Many tenants looked for economical alternatives to growing lease rates. With flat absorption and growing inventory, it is expected that rents will remain steady as they did through the past two quarters.