Oakland Office Vacancy Ticks Up to More Than 21%

The number of empty offices in Oakland has ticked up a smidge, but market experts say the market may have bottomed out.

Office vacancy rose 1 percent to 21.4 percent in the third quarter ending this month, from 20.4 percent in the prior period and 17 percent a year earlier, the San Francisco Business Times reported, citing preliminary figures from Colliers.

The vacancy in Oakland’s central business district rose 0.9 percent to 23 percent, from 22.1 percent.

Rising vacancies and falling rents in the greater Oakland office market have been largely fueled by a slow return to work as companies downsize their office footprints — while declining net absorption points to a bottom of the market.

“Many market participants feel that the market is bottoming. It’s a question of how long are we going to be at this bottom?” Derek Daniels, Colliers regional research director, told the Business Times. “There are some green shoots of optimism that things might improve.

“We have elections coming up, but there are a lot of factors that are at play here beyond just trends in the office.”

For the past 19 quarters, Oakland’s net absorption — which measures the change in the amount of occupied space — has been negative.

Negative net absorption generally means vacancy is rising, though Daniels said this quarter’s net absorption was less negative than last quarter, which was a positive sign.

Local businesses don’t need as much space as they did prior to the pandemic. As leases expire, tenants relocate or downsize.

“Downtown Oakland, like many core downtown markets, is feeling challenges with getting people back into the office,” Daniels said. “Larger occupiers are basically on hold for looking for new space.”

At the same time, government workers have not fully returned to the office, leading to less foot traffic, increasing crime in Downtown, hurting retail businesses and making the city feel less safe.

Office rents are plunging. The market-wide asking rents averaged $3.87 per square foot per month in the third quarter, down 9.2 percent year-over-year. In Oakland’s central business district, monthly asking rents fell 11.2 percent year-over-year to $4.06 per square foot.

Concessions, free rent and tenant improvement allowances are on the rise, Daniels said, and landlords need to offer more to close deals.

“There’s a bit of a reset happening on the deal economics that might spur demand,” Daniels told the newspaper. “If you look at our gross absorption, which is a measure of total leasing for the quarter, Q3 is looking pretty good for a post-COVID number.”

The Colliers data, while severe, don’t match office vacancy estimates from some analysts.

In October last year, CBRE reported Oakland had a third-quarter vacancy rate of 29.7 percent, with availability in Downtown Oakland at 33.4 percent.

In July last year, Cushman & Wakefield pegged the vacancy in the core business district of Downtown Oakland, Uptown and Lake Merritt at 35.7 percent, closer to San Francisco’s current vacancy record of 37.3 percent.

— Dana Bartholomew