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PG&E’s decision to shift headquarters to city seen as big help for East Bay
OAKLAND >> Office rents in the Oakland area are holding steady, but vacancy levels have increased, an indication that coronavirus-linked business shutdowns are having an effect on the region’s commercial real estate market, a new report shows.
The deadly bug has unleashed an array of uncertainties and economic woes. Still, the East Bay office market has been buoyed by word that PG&E intends to shift its corporate headquarters to an iconic office tower along the shores of
Lake Merritt in downtown Oakland.
“Rents continue to hold firm in all East Bay submarkets, but landlord concessions are steadily increasing,” commercial real estate firm CBRE stated in its report on the office markets in Oakland, Berkeley, Alameda, Emeryville, Richmond, and San Leandro covering the second quarter of 2020.
The coronavirus has caused a murky picture to emerge about just how much expansion space tenants will require in the East Bay, according to the report.
“Uncertainty around short-term and long-term space needs has caused many occupiers to pause and reassess their growth plans going forward,” CBRE stated.
However, the brightest moment for the second quarter came to light when PG&E revealed that it has struck a deal to first lease and then potentially buy a 28-story office tower at 300 Lakeside Drive in downtown Oakland where the utility giant intends to move its headquarters along with 4,500 workers.
The lease and purchase option deal between PG&E and veteran developer TMG Partners for the office tower, which totals 910,000 square feet, also bears wider implications for the office market in the East Bay.
“This move gives a blueprint to other companies thinking about moving their headquarters from San Francisco to Oakland,” CBRE said. “The Oakland market is seeing more demand.”
Tenants are seeking an estimated 2.5 million square feet of office space in the Oakland area, according to CBRE.
The vacancy rate in the Oakland, Berkeley, Emeryville, Richmond, Alameda, and San Leandro markets was 8.7 percent in the second quarter. That was up from 8.3 percent in the first quarter.
Rental rates for Class A, or prime and modern office spaces, held steady in the Oakland area, coming in at an average of $4.99 a square foot in the second quarter, which was close to the $4.98 a square foot average for the first quarter.
Still, leasing activity dwindled and tenants vacated spaces in widening numbers, the report determined.
A net amount of 69,000 square feet became unoccupied in the Oakland market area when balancing the square footage totals for newly signed leases against the square footage for tenant exits.
“Concessions from landlords like tenant improvements and rental abatement have been increasing,” CBRE reported.