Office Insight Oakland Q2 2015 Landlords maintain confidence in Oakland Class B plays bigger role moving forward Class B space is beginning to gain favor among tenants, especially as more creative and tech companies tour the Oakland market. Additionally, recent workplace trends indicate that creative tenants are favoring historical Class B buildings over Trophy/Class A assets, generating a higher demand for secondtier options. As a result, rents in this segment have increased by 21.6 percent in the last 12 months, compared with just 12.2 percent for Class A. Robust leasing activity for both Class A and B space have created more competition, especially for small-to-mid-size users. Rental rates continue to climb as overall vacancies fell to single digits this quarter, down to 9.4 percent, the lowest since 2007. Oakland-CBD historical Class B rents (p.s.f) Oakland Suburbs poised for more tenant activity As the Oakland-CBD continues to tighten, tenant activity has begun to increase in neighboring submarkets such as Emeryville and Alameda. We are currently tracking over 2.4 million square feet of tenant demand for space in the Oakland suburbs, especially in the bio-tech and life science sectors. These second-tier submarkets are becoming viable contenders to downtown Oakland, satisfying the demand for larger space for startups to grow as well as allowing seasoned companies to expand their footprint. Tenant demand targeting Oakland Suburbs (total s.f.) $3.00 $2.50 $2.00 $2.76 $2.27 $1.99 $1.96 $1.95 $1.91 $2.00 $1.84 $1.91 $1.94 $1.50 $1.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Source: JLL Research 145,000 624,500 Alameda-S Alameda-N Emeryville Berkeley 908,400 718,500 Source: JLL Research Booming economy fueling demand More companies are considering Oakland as a viable market for growth due to a skilled labor pool and greater affordability. Additionally, investors have been more engaged in Oakland’s tech cluster as high-tech VC funding nearly doubled in Q1. This translates into a heightened confidence in tech, bio, and life science startups. As a result, job growth should continue to flourish as startups wade through the labor pool for talent. As the east-bound migration continues, Oakland will continue to see economic growth across all business sectors, translating into swelling demand for office space. Oakland could see speculative construction in the next 12-18 months if demand continues at this pace and economic conditions remain steady. Investor confidence in tech cluster ($ in mil) $300 $193.50 $200 $100 $127.50 $93.00 $67.40 $119.38 $60.50 $22.10 $0.00 $18.802,257 $0 Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 2015 Source: JLL Research, PwCMoneytree 12,484,874 84,068 $3.11 0 Total inventory (s.f.) Q2 2015 net absorption (s.f.) Direct average asking rent (p.s.f) Total under construction (s.f.) 13.2% 269,074 5.4% 0.0% Total vacancy YTD net absorption (s.f.) 12-month rent growth Total preleased Current conditions – submarket Historical leasing activity (s.f.) Peaking market Oakland-CBD Rising market Oakland Suburbs Falling market Bottoming market 2,659,360 2,379,852 2,500,000 Tenant leverage Landlord leverage 3,000,000 2,000,000 1,993,864 1,666,250 1,500,000 1,000,000 690,426 500,000 0 2011 Source: JLL Research 2012 2013 2014 YTD 2015 Source: JLL Research Total net absorption (s.f.) 800,000 600,000 400,000 200,000 0 -200,000 -400,000 -600,000 646,283 521,999 269,074 248,319 129,747 20,051 -68,766 -133,226 -251,392 -436,081 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Source: JLL Research Total vacancy rate (%) 20.0% 18.0% 16.0% 14.0% 14.2% 14.0% 12.0% 10.0% 8.0% 6.0% 2006 2007 17.8% 16.6% 15.2% 16.6% 15.4% 15.1% 16.5% 13.2% 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Source: JLL Research Direct average asking rent ($ p.s.f.) $34.00 $31.92 $29.00 $24.00 $25.80 $25.56 $25.90 $24.48 $24.12 2009 2010 $26.92 $27.74 $28.32 2012 2013 2014 $22.32 $19.00 $14.00 2006 2007 2008 2011 YTD 2015 Source: JLL Research For more information, contact: Katherine Billingsley k.billingsley@am.jll.com ©2015 Jones Lang LaSalle IP, Inc. All rights reserved.