Key facts
- Oakland's office vacancy rate reached 27.4% in Q1, with negative net absorption of 110,000 SF.
- Asking rents in Oakland's central business district were $3.92 per SF in Q1, down nearly 28% from their peak.
- San Francisco's office vacancy improved to 31.6% in Q1, with 3.7M SF of new leases signed.
- AI companies are prioritizing speed to occupancy and are willing to bypass traditional processes.
- Landlords are investing in repositioning buildings and creating move-in-ready suites to attract tenants.
Oakland's office market is grappling with a significant downturn, characterized by a 27.4% vacancy rate and negative net absorption in the first quarter. Rents in the central business district have fallen by nearly 28% from their peak, underscoring the challenges landlords face in attracting demand.
In response, East Bay landlords are strategically investing in repositioning their properties, creating speculative suites, and preparing permits to expedite readiness for potential tenants. This proactive approach aims to capture any spillover demand from San Francisco's improving office market, which has seen a surge in leasing activity driven by artificial intelligence companies.
San Francisco's office market reported a vacancy rate of 31.6% in Q1, but new leases accounted for 3.7 million square feet, the highest level since the second quarter of 2018. Industry experts note that AI tenants prioritize rapid occupancy and are willing to forgo traditional tenant improvement processes, making move-in-ready spaces a critical leasing tool.
Landlords like Kilroy Realty have seen success by building out smaller suites for AI tenants, significantly increasing occupancy. Strada Investment Group is also deploying capital to create ready-to-occupy suites, recognizing the urgent need for space among emerging AI companies.