OAKLAND — The Oakland office market weakened greatly at the end of 2024, beset by rising vacancy levels in the downtown district and by a nosedive in office values in the city, a forbidding new report shows.
Downtown Oakland is especially feeble, with well over one-fourth of the office space in the East Bay city’s urban core empty or being offered for sublease by a tenant that doesn’t want to occupy the site, according to the report released by Colliers, a commercial real estate firm.
Despite the frail conditions of downtown Oakland, the entire Oakland metro region along the northern stretch of Interstate 880 was far from robust.
“The Oakland metropolitan office market closed the fourth quarter of 2024 facing several challenges that extended existing trends in the leasing climate,” Colliers stated in its report.
The problem, however, extends beyond soaring vacancy and sublease levels. Property values have nosedived for office buildings in the region.
The fate of The Landing, a prominent office complex on Hegenberger Road in east Oakland, serves as a stark example of the plunge in office building values in the Oakland metro area.
In 2019 — the final year before the arrival of the economic dislocations and business shutdowns unleashed by the coronavirus — Walnut Creek-based real estate firm Vertical Ventures paid $40.6 million for the office buildings at 303 and 333 Hegenberger Road.
But in June 2024, just five years later, a lender seized the office hub, which totals 198,200 square feet, in a transaction that placed a value on the two-building complex of $14.75 million.
Even the foreclosure price was too high, however. The new owner paid $13 million for the office center, documents filed on Nov. 19 with the Alameda County Recorder’s Office show. That final price was a jaw-dropping 68% below the prior sale price for the property.
The downtown Oakland office woes were particularly stark, though. They showed the vacancy rate is on the rise in the downtown of the East Bay’s largest city:
— In the October-through-December fourth quarter of 2024, downtown Oakland’s office vacancy rate was 26.9%.
— In the July-September third quarter of 2024, the downtown office vacancy level was 23.8%, Colliers reported.
— The general Oakland metro area, which consists of Oakland, Berkeley, Emeryville, Alameda and Richmond, had an overall vacancy rate of 22.8% in the fourth quarter of 2024. That was up from 21.4% in the third quarter.
“The Oakland office market faced significant challenges throughout 2024, including rising vacancy rates and declining rents, as companies continued to reassess their office space requirements,” Colliers reported.
In another challenging trend, far more space became empty compared with the space that tenants filled up.
Throughout the five-city Oakland metro region, 878,400 square feet more office space became empty than was filled through leases or subleases.
Of that total, 695,000 square feet more space became empty than was filled up in downtown Oakland alone — a whopping 79% of the metro region’s total.
The increasingly empty blocks of office space in the Oakland metro area shoved rents lower.
During the final three months of 2024, the average asking rent for office space in the Oakland metro area was $3.81 a square foot, down 1.6% from the July-through-September third quarter and down 7.1 % from the year-ago fourth quarter.
Despite the ominous results as 2024 came to a close, researchers believe Oakland-area office building owners have some room for hope.
“Early signs of recovery were emerging at year-end, with indications that the market may be approaching the bottom of the cycle,” Colliers stated in its report. “As pre-2020 leases continue to burn off, there is a continued sense of optimism for market stability in 2025.”