Class-A Office Demand Shrinks in the East Bay

Historically, the East Bay has served as a spillover market for class-A office users looking for quality at a discount compared to neighboring San Francisco and San Jose. Now that the pandemic has adjusted office pricing and availability in major metros, tech companies and other class-A office users are no longer fleeing to the East Bay. A new market report from Marcus & Millichap says that class-A office will likely be slower to recover than class-B and class-C office space as a result.

Prior to the pandemic, office prices in the East Bay and Oakland were 70% less than the surrounding major metros, but the increased availability in those markets will likely close that pricing gap. However, class-B and C demand will remain stable from companies outside of the tech industry. As a result, Marcus & Millichap expects the office vacancy will increase only 80 basis points this year, thanks to demand for lower-quality office space. On the other hand, the report expects office rents to fall 3.7%, driven by decreased demand for higher priced space.