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OAKLAND, CA-The East Bay office market is a tale of two regions, according to year-end numbers from Grubb & Ellis. Isolated trouble spots in the 31-million-sf Tri-Valley/I-680 office market resulted in 324,500 sf of negative net absorption there, while the 26-million-sf I-80/I-880 region produced 100,000 sf of positive net absorption.

The result was 225,000 sf of negative net absorption that pushed the overall East Bay office vacancy rate up 80 basis points to 13.3%. Within that, the I-80/I-880 region saw overall vacancy fall to 12.1% while the Tri-Valley/I-680 office market saw vacancy rise to 14.3%. It’s been nearly three years since the Tri-Valley/I-680 region has experience a vacancy rate at this level, according to the report.

The laggards in the Tri-Valley/I-680 office market were the Concord (3.6 million sf; 25.9% vacancy) and Dublin (2.2 million sf; 17.1% vacancy) submarkets, which together posted nearly 350,000 sf of negative net absorption. The largest submarkets in the region–Pleasanton (8.4 million sf; 13.6% vacancy), Walnut Creek (7.5 million sf; 12.2% vacancy), San Ramon (5.9 million sf; 12.7%) held fairly steady with net absorption figures that were either only slightly negative or positive.

There were no laggards in the I-80/I-880 region, which includes not only Oakland and Emeryville but also the North I-80 and Alameda submarkets. The best performer was Emeryville (3.7 million sf; 8.3% vacancy), which posted a combined 170,000 sf of positive net absorption. The largest submarket in the region, the 14.5-million-sf Oakland market, held steady at 12.7% with less than 50,000 sf of negative net absorption. Within that is the 11.5-million-sf Oakland CBD market, which posted less than 10,000 sf of negative net absorption for an 11.3% vacancy rate. The largest of the rest–Alameda (three million sf; 18.4% vacancy) and Berkeley (2.6 million sf; 11.3% vacancy) posted net absorption that was only slightly negative or positive.

Despite rental rates remaining relatively flat for the quarter, rental rates throughout the East Bay enjoyed solid growth in 2007 with year-end class A rents in the Oakland CBD, Emeryville and Contra Costa Centre experiencing double digit annualized increases. Average class A rents in the Oakland CBD as of the end of the year ranged from $2.35 to $2.55 per sf per year, some of the highest rents in the East Bay outside of Walnut Creek, where CBD rents range from $2.90 to $3.50 per sf.

“Watch for the East Bay to continue to experience organic growth in 2008, but the sluggish economy and housing market will likely put a drag on demand and slow the pace of lease transactions during the first half of 2008,” states the report. “Look for the East Bay to attract tenants seeking quality space at relatively reasonable rents from the neighboring Bay Area markets.”

Cornish & Carey Commercial, which takes the analysis one step further by breaking down the submarkets by product type, finds that the Oakland CBD class A market remains the tightest submarket in the region with a vacancy rate just under 10. In contrast, the Oakland CBD class B market is one of the loosest in the region, with a 27% vacancy rate.

With class A space in Oakland limited, C&C’s recently released 2008 forecast says Shorenstein Co. is mulling a decision to build 500,000 sf of office on a redevelopment site at the corner of 12th Street and Clay. The site is not far from Shorenstein’s City Center, which is considered one of the Bay Area’s most successful real estate projects. Already to market is Brandywine Realty Trust’s new eight-story, 200,000-sf office building at 2100 Franklin Street in Downtown Oakland.

Elsewhere in Oakland, construction is under way for Ellis Partners’ mixed-use project at Jack London Square. When complete in early 2009, it will be the East Bay’s version of Pike Place Market in Seattle, with the added amenity of 100,000 sf of class A office.

C&C attributes Emeryville’s performance to its emergence as a center for the development of alternative fuels along with the neighboring city of Berkeley. In addition to the Department of Energy-funded Joint Bio Energy Institute’s 65,000-sf lease at Emerystation East and Amyris Biotechnologies’ expansion to 70,000 sf there, BP (formerly British Petroleum) has announced a $500-million initiative to start an alternative fuels research group at the University of California/Berkeley in the spring.

“When big institutions and governments invest in new enterprises, it usually spurs related growth in the form of startups–and drives demand for commercial offices and R&D buildings,” states the C&C forecast report. “Moreover, venture capital has taken a keen interest in ‘clean technology’ as well as traditional life sciences. The East Bay office market will continue to benefit from this trend, as will other submarkets in the Bay Area.”

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