2019-07-12_DTZ戴德梁行_Office_Q2_2019_East_Bay_Walnut_Creek_4页_1mb

East Bay Walnut Creek Office Market Summary Q2 2019

Core Content Overview

The East Bay Walnut Creek office market in Q2 2019 showed mixed trends, with continued employment growth, a slight increase in vacancy, and a positive net absorption. The market remains competitive, with a focus on smaller professional services firms due to its affordability and relaxed environment.

Economic Indicators

• East Bay Employment: Increased year-over-year (YOY) by 1.7% to 1.198 million jobs.
• East Bay Unemployment: Rose slightly to 3.2%, remaining 40 basis points (bps) below the national average.
• U.S. Unemployment: Dropped to 3.6%.
• Overall Vacancy Rate: Stagnated at 16.8%, remaining between 15-17% for eight quarters.
• Net Absorption: Increased by 17,965 square feet (sf) in Q2 2019, marking a return to positive absorption after a negative first quarter.
• Average Asking Rent: Slightly decreased to $3.07 psf/mo, reflecting the market's price sensitivity.

Market Trends

• Vacancy Stagnation: Vacancy rates have remained stable between 15-17% for eight quarters, up from a 10-year low of 12% in 2016.
• Space Availability: Large blocks of space are rare, and when available, they often remain vacant for extended periods.
• Submarket Performance:
  • Concord: High vacancy (17.5%) and negative net absorption.
  • Pleasant Hill: Lower vacancy (8.5%) but mixed net absorption.
  • Lamarinda: Low vacancy (7.0%) and positive net absorption.
  • WC Downtown: Vacancy at 15.5%, with some positive absorption.
  • WC Pleasant Hill BART: Vacancy at 15.8%, showing some positive absorption.
  • WC BART Area: Vacancy at 19.7%, with mixed absorption.
  • WC Shadelands: High vacancy (22.4%) but positive absorption.
• Class Breakdown:
  • Class A: Vacancy at 18.2%, average asking rent at $3.36 psf/mo.
  • Class B: Vacancy at 14.7%, average asking rent at $2.52 psf/mo.
  • Total: Vacancy at 16.8%, average asking rent at $3.07 psf/mo.

Key Lease Transactions

• 1390 Willow Pass Road (37,098 sf): Eichleay Engineers renewed their lease.
• 2300 Clayton Road (22,761 sf): San Francisco Fire Credit Union signed a new lease.
• 100 Pringle Avenue (10,633 sf): Glynn Finley LLP renewed their lease.

Key Sale Transactions

• 185 Lennon Lane (40,857 sf): Sold to LN Curtis & Sons for $8,300,000 ($203 psf).
• 1485 Civic Court (32,890 sf): Sold to Sasha Shamszad for $6,090,000 ($185 psf).

Outlook and Analysis

• Rental Rates: It is unlikely that asking rents will rise further until landlords successfully fill current vacancies.
• Sales Volume: Anticipated to increase through 2019, though no large institutional transactions have occurred yet.
• Pricing Strategy: The success of current pricing depends on occupiers perceiving the value of the East Bay Walnut Creek market compared to surrounding areas.
• Market Appeal: The market attracts smaller regional firms due to its affordability and availability of spaces under 10,000 sf, while larger corporate tenants are drawn to Pleasanton for its larger blocks of space.

Conclusion

The East Bay Walnut Creek office market remains a hub for smaller professional services firms, offering lower rents and a relaxed environment. Despite a slight increase in vacancy, the market has seen a return to positive net absorption in Q2 2019. Landlords are maintaining stable rents, with a focus on providing tenant improvement packages and enhancing building amenities. The market's unique characteristics make it an attractive option for cost-sensitive businesses, though the lack of large institutional transactions suggests continued caution among investors.