Is Oakland the new SOMA?

Oakland looking more and more like the new SoMa for tech leasing

Source: San Francisco Business Journal
Author: Blanca Torres

As office rents soar and available space plummets in San Francisco and the Peninsula, now may be the right time for tech companies to pack up for Oakland.
Oakland is a prime position to attract tech tenants that could be priced out or simply can’t find space in the West Bay, said Bill Cumbelich, a broker with CBRE. Cumbelich mostly concentrated on San Francisco, but is now handling leasing for Oakland office buildings.
In the past, price was the primary reason to defect from San Francisco to the East Bay, but the scenario has changed. Oakland now boasts many of the urban amenities that draw tech tenants to San Francisco: proximity to BART and other public transportation, restaurants and nightlife. On top of that, housing is more affordable.
“We see this real estate cycle as a different scenario,” Cumbelich said. “It will be easier to attract and retain employees in Oakland. We think Oakland could be another submarket of San Francisco.”

Cumbelich isn’t the only person who sees Oakland as the SoMa of the future. Mitch Kapor, an early tech founder and philanthropist, moved his foundation and investment fund to Oakland two years ago and also made the Oakland-SoMa comparison. What made SoMa what it is now is that it started out as gritty and underutilized and was transformed into an edgy office market that attracted companies to break the norm.

Already, the migration trend of tenants going west to east is taking hold, said Trevor Thorpe, who manages CBRE’s East Bay operations. The wave started with non-profits, grew to professional services like law and engineering firms. Tech, he said, is next. The same pattern happened when SoMa went through revitalization as tenants were priced out of other parts of San Francisco. In the past three years, average asking rents in San Francisco shot up by 90 percent to $59 per square foot in 2013 from $31 per square foot in 2010. In Oakland, rents have climbed by 15 percent during the same period from $24 per square foot in 2010 to $28 per square foot in 2014 — half of the San Francisco average.

Besides rents soaring, San Francisco is the middle of a space crunch despite more than 4 million square feet of office space under construction since much of the new space is pre-leased. In a few years, development activity could hit a voter-approved cap on office development known as Prop. M that would stall prospective projects. Oakland’s has cheaper rents along with more available space will work in Oakland’s favor. The vacancy in San Francisco is 7 percent vs. 14.2 percent in Oakland.”We believe that the recent commercial real estate renaissance in the Oakland market is supporting a more broad-based and sticky (i.e. permanent) economic recovery and transference of users to the East Bay,” Thorpe said.

So far, the spillover effect from San Francisco to the East Bay counts more than 300,000 square feet of leasing. The East Bay has yet to land a marquis expansion or headquarters in this cycle, but that could happen once more creative space opens up in repositioned properties like the Sears department store that was recently bought by Lane Partners. Lane has plans to revamp the building as Uptown Station. Lane Partners is planning an extensive renovation of the 400,000-square-foot property that should be done by 2016. The work hasn’t even started and already a tech tenant with a requirement for 150,000 square feet has toured the building, Cumbelich said. “The building is being designed for tech,” he said. “We can land a big tenant in the next 12 months.”