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July 4, 2018

The 1994 Northridge earthquake rocked the San Fernando Valley, killing more than 60 and injuring over 9,000. Freeways collapsed, trapping cars under rubble. Only wreckage remained of buildings that once stood tall.

Yet something more threatening might be in store for the East Bay, according to recent reporting from the Los Angeles Times and a report released by Kroll Bond Rating Agency (KBRA).

Geologists note the approaching 150-year anniversary of the last major earthquake on the Hayward fault means another earthquake is likely. Nearly 2 million people live on the fault, in Berkeley, Oakland, Hayward, Fremont and Milpitas. Areas as far as San Ramon and Livermore valleys could also feel the effects. An earthquake of this size could displace over 400,000 people, cause $120 billion in losses, and cut off clean water to East Bay residents for more than six months, reports the Los Angeles Times. According to the Times, an earthquake of this size would outmatch building codes that allow for safe evacuation.

What does this mean for property owners?

Many properties that are near the threshold for needing earthquake insurance do not actually have it and could also “suffer moderate-to-significant damage” in a seismic event, reports KBRA.

In California, CMBS and other forms of commercial real estate lending typically require earthquake insurance for properties in seismic zones 3 or 4 with a probable maximum loss (PML) that exceeds 20% of the replacement cost of improvements. According to a KBRA press release, 25% of properties in the study have a PML between 15% and 18% or less.

“Uninsured assets with higher amounts of damage may be more susceptible to borrower defaults and potentially lead to transaction losses,” writes KBRA.

For both commercial or private properties and residents from Oakland to San Ramon, an event this large could leave scars on the Bay Area that take years to heal.

Read more at the LA times and Business Wire

June 27, 2018

Newmark Knight and Frank (NKF) researchers throughout the country recently contributed to a study published by the company, with the goal of examining popular beliefs about commercial real estate and determining their validity.

Among the misconceptions they address is the belief that suburban office locations have become less desirable, and that companies have found that they must be located closer to the urban core in order to attract and retain young talent.

NKF researchers dispel that myth, noting that “Mixed-use, suburban environments that can replicate [urban environments’] ease of access and mobility remain popular with today’s office tenants,” especially those in the tech industry.

Since 2013, absorption in suburban office markets has outpaced absorption in central business districts in the 56 major markets tracked by NKF, according to the study. They note the example of the Denver metro area, where the Southeast Suburban submarket led the market for absorption in the period from Q1 2010 to Q1 2018, and is home to seven of the nine Fortune 500 companies located in Colorado. Absorption has been driven largely by corporate tenants’ vigorous growth.

Download and read the full report at www.ngkf.com

June 19, 2018

The City of Oakland has proposed the redevelopment of the downtown Clay Street Garage, which has been vacant since 2016, into an office complex, reports the East Bay Times.

The building, which was closed due to seismic safety issues, should be demolished and the site used for an office building, the city’s transportation and economic and workforce development department officials recommended in a March report.

A city-commissioned a study to determine the benefit of demolishing and rebuilding the structure as a mixed-use development found the city could make about $4.3 million from developing the site into an office complex.

Demand for office space in downtown Oakland has surged as increasing San Francisco office rents have led companies to relocate to the East Bay.

Oakland’s downtown office market is the tightest in the nation, with lower office vacancy levels than business centers like Manhattan and Boston, according to CBRE’s Q1 2018 report.

Housing activists, however, have advocated the space be developed as affordable housing, given Oakland’s rising rents. The City Council has directed staff to explore the feasibility of building affordable or market-rate housing at the site.

Read more at www.eastbaytimes.com

June 14, 2018

CBRE reports high demand for creative buildouts in Oakland as the market continues to tighten. The commercial realty brokerage’s most recent Oakland Office Marketview notes quarter-over-quarter rent growth for Class B space (4.2%) easily outpaced growth for Class A assets (1.6%), and explains “the overall look and feel” of Class B creative product makes it “truly a legitimate alternative to premium rents for tenants seeking exciting and desirable space.”

Demand for office space in downtown Oakland has surged as increasing San Francisco office rents have led companies to relocate — many to the East Bay. The office market in downtown Oakland is the tightest in the nation, with lower office vacancy levels than even those in business centers such as Manhattan and Boston.

“Downtown Oakland offices have seen expansion from San Francisco, not just in tech, but primarily in non-tech companies that want to stay in the Bay Area but find the rents in San Francisco too high,” Lexi Russell, a senior research analyst for CBRE in Northern California, told the Mercury-News. “Companies are finding it beneficial to relocate to Oakland because so many of their employees live in the East Bay and the rents are less expensive.”

 

Download and read the full Marketview report at www.cbre.us