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  • 1. First Quarter 2010 • East Bay Office and Flex Space EMERYVILLE & OAKLAND OFFICES 5980 Horton Street, Suite 100 • Emeryville, CA 94608 • Tel: 510.923.6200 • Fax: 510.923.6260 10 Clay Street, Suite 250 • Oakland, CA 94607 • Tel: 510.995.3560 • 510.995.3561 www.ccarey.com
  • 2. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TABLE OF CONTENTS Coverage Map 1 East Bay Market Overview 2 Office Market: Market Summary 5 Market Highlights 6 Historical Statistics 7 East Bay Tenant Activity 9 Tenants in the Market 10 Cornish & Carey Commercial East Bay Office and Flex Space Quarterly Report is based on a quarterly survey of competitive Office, and R&D buildings. The data included in this report incorporates not only space presently available on the market, but also space that we have been led to believe will come onto the market in the foreseeable future. Information contained herein has been given to us by the owner of the property or other sources we deem reliable. We have no reason to doubt its accuracy, but make no guarantee, warranty or representation about it. All information should be verified prior to lease or purchase.
  • 3. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 COVERAGE MAP 1
  • 4. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY MARKET OVERVIEW First Quarter, 2010 Office Summary On the investment side, no buildings of any significance traded except for 80 Swan Way in the Oakland Airport The East Bay Office Market for the first quarter of 2010 area. This 52,544 square foot 3-story office building was can best be described as “flat”. For every square foot of foreclosed upon and auctioned on the courthouse steps; space leased another became vacant as absorption across the prevailing bidder paid $1,580,000 ($28.75 PSF). This the entire 25 million square foot market was negative building was originally put on the market by the owner at 25,991 square feet. Two of the largest leases signed were $4 million dollars, the CMBS loan balance was $3.2 million government tenants with the US Bankruptcy Courts’ dollars. renewal of their 38,000 square foot lease in Shorenstein’s City Center, while the Social Security Administration Downtown Oakland leased 35,000 square feet at 2100 Franklin, CIM’s newest building. The Social Security Administration will relocate Downtown Oakland was the most active of the submarkets from its current location in Downtown Richmond. Kaiser during the first quarter. The US Bankruptcy Court Permanente renewed a 65,000 square foot lease at Harbor renewed their lease for 38,077 square feet at Shorenstein’s Bay in Alameda. 1300 Clay Street. The University of California Office of the President renewed their 23,000 square foot lease on the The vacancy rate for the East Bay remains steady at 20.27% 14th floor of 1111 Broadway, also a Shorenstein building. and effective rates stayed about the same throughout most Offices of Ben Gerwick, Inc. took 14,996 square feet at of the markets – it is still a great time to be a tenant as 1300 Clay Street and DeVry University opened a new there are some great deals out there to be had. The branch leasing 15,768 square feet at Shorenstein’s 505 14th market is experiencing a “flight to quality” where tenants Street. The Social Security Administration leased a floor can upgrade their spaces or move to a better building for and a half at CIM’s 2100 Franklin Street taking 35,000 the same rate or a lower rate than they had previously square feet. This group will be relocating from their been paying. Market activity is good; we are presently present location in Downtown Richmond. At the Swig tracking 68 tenants active in the market looking for a total Company’s 300 Lakeside building, law firm Foley & of over one million square feet of space. Mansfield leased a 23,000 square foot floor, relocating from 1111 Broadway at City Center. The Downtown Oakland On a bright note, toward the end of the first quarter we Class A market commands the highest rents in the East Bay are beginning to see indicators that there may be some real with most leases in the $2.65-$2.85 PSF range, fully growth in the economy, although in the East Bay much of serviced. Between Oakland’s two largest landlords, this growth appears to be in the manufacturing sector. Shorenstein at City Center and CIM in the Lake Merritt Alternative energy companies and solar power companies area, they control over 60% of the inventory in the continue to be active in the market as venture capital and submarket. government stimulus monies are flowing to these industries. Emeryville’s Amyris, an alternative fuels The only other building which changed hands in Oakland company, has filed papers to begin their IPO process. The this quarter was the Pacific Building at 600-610 16th Street. healthcare sector also is active as aging Baby Boomers AB Chestnut LC bought the building in a foreclosure sale drive growth in this sector. for $4,436,106 or $67.24 PSF. This 4-story Class C structure was built in 1912. No new large blocks of sublease space were put on the market during the quarter. Sublease space only takes up The Oakland Class A submarket absorbed a total of 77,162 2.22% of the total vacancy of 20.27%, accounting for only square feet of space in the first quarter, perhaps indicating about ten percent of the total vacant space in the market. that the “flight to quality” phenomenon is actually Some observers question whether rents have much further occurring. distance to fall, we believe the answer is “not much if any”. Rents have fallen to the point of the “zero return Emeryville transaction,” where the cost of the lease transaction and putting in tenant improvements and fees are equal to or Software company Gracenote renewed and expanded its close to the total net return that the Landlord will realize lease at US Bank’s 2000 Powell Street in Tower III of the from the rental income stream. Most property owners will Watergate Project. The tenant took a total of 48,000 not go below this “zero return” threshold. square feet consisting of the entire 12th and 15th floors of 2
  • 5. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 the building. The Class A market had negative absorption renew. Absorption in Harbor Bay was negative 19,500 of 34,141 square feet and the Class B market in Emeryville square feet. had a negative absorption of 46,826 square feet indicating a Berkeley shrinkage of total space occupied across all product types. Class A rents in Emeryville currently are in the $2.00-$2.35 There was 13,231 square feet of negative absorption in PSF range, fully serviced, which represents a discount to Berkeley through the quarter. MSCI Barra downsized from the Oakland markets of approximately $0.50 PSF. 59,000 square feet to 34,000 square feet and renewed their lease at 1st Milvia LLC’s 2100 Milvia Street. SKM will be As mentioned previously, alternative energy innovator marketing the remaining 30,000 square feet in the building, Amyris has filed papers to begin an IPO which is believed which MSCI Barra previously occupied. Cobalt Law signed could occur in the second half of this year, indicating the a 6,066 square foot lease at Eat/Work Development LP’s health and strength of the capital flows for alternative 918 Parker Street. The law firm relocated from Bancroft energy. Random House leased 9,162 square feet in TMG Plaza. Hydro Science Engineers relocated from Napa to a Partners’ 6001 Shellmound. Class A vacancy in Emeryville is 4,909 square foot suite on the 2nd floor of 739 Allston 20.12%, almost a third of which is sublease space. Way. After subleasing within the building for a number of years Northern California Cancer Center signed a direct Jack London Square lease for 3,328 square feet with Disability Rights Advocates at 2001 Center Street. Ellis Partners’ new Jack London Market Building consisting of 110,000 square feet of Class A space and 65,000 square A notice of default has been filed for the 2120 University feet of public market and restaurants is shell complete and Avenue building. This 44,000 square foot building has is scheduled to be opened in late 2010. The building is a remained almost totally vacant since Lawrence Berkeley creative mixed use project with a public market style National Labs moved out of the building mid-2009. gourmet market and sustainable cuisine on the first two levels of the building. Richmond Ellis Partners also completed a lease with solar installer Voxis expanded and relocated to take a total of 6,500 Sungevity for 20,000 square feet on the 3rd (top) floor of square feet at Burt Clausen’s 1160 Brickyard Cove. The their 66 Franklin Street building. company was formerly located at 1150 Brickyard Cove. There was a 32,000 square foot lease signed at 1401 Alameda Marina Way South, the Lessee is rumored to be a Bingo parlor. In the hilltop area of Richmond, Landlords have Software maker Wind River Corporation was acquired by indicated that Tenant tour activity is up substantially in the Intel. This tenant had been trying to sublease 125,000 Blume Drive and Lakeside Drive areas. The Richmond square feet of space but has taken this space off of the market absorbed 2,080 square feet in the first quarter. market resulting in a positive absorption for the Marina Village submarket of 109,876 square feet. Biotech Oakland Airport innovator Arriva Pharmaceuticals closed the doors on its business, putting 22,000 square feet of office/lab back on The Regional Center of the East Bay vacated approximately the market in Marina Village. Yang Ming Lines signed a lease 60,000 square feet of space at Cranbrook’s 7677 Oakport at Legacy’s Marina Village in Alameda and will relocate to Street moving to their new building near the San Leandro the business park from its previous location in Oakland’s BART station. This vacancy coupled with other tenant City Center. shrinkage led to a negative absorption of 94,812 square feet for the quarter. In a trustee sale, 80 Swan Way, a 3-story Wind River’s activity dropped the vacancy in Marina Village 52,544 square foot building sold. The sales price was from 33.72% to 27.8%. $1,580,000 or $28.75 PSF. At a point several years ago, raw land was selling in the Airport area for $25.00 PSF to In Harbor Bay, Kaiser Permanente renewed their lease for give an indication in the drop in office values in this 65,000 square feet in 1451 Harbor Bay Parkway. It was submarket. This was a CMBS Loan. rumored that this requirement was going to be moved to Kaiser’s new Pleasanton campus so it was a vote of 8393 Capwell Drive also sold, a 21,064 square foot 2-story confidence for this submarket that Kaiser decided to office building. The buyer was Hume Jung and the seller 3
  • 6. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 was the John E. Pessin Living Trust, the sales price was $2,150,000 or $102.07 PSF. The Oakland Airport has always been one of the most economical markets in the East Bay. Some Landlords are marketing space quoting asking rates of $1.10-$1.20 PSF, fully serviced. Conclusion We’ve been hoping there was light at the end of the tunnel for quite some time for owners of office buildings in the East Bay. Based on some of the current economic trends and other favorable happenings, it looks as though relief may be on the way. It may take several years for a full recovery to manifest itself but in the meantime, tenants can take advantage of historical low rents in the market, upgrade their spaces, and receive flexible terms allowing for growth. We are hopeful that the rest of 2010 will bring continued good news and revive the job creation engine that we have historically been fortunate enough to experience in the East Bay. Best Regards, Daniel Pivnick (510) 923-9150 dpivnick@ccarey.com 4
  • 7. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE - AVAILABLE SPACE Total Total Inventory Direct Sublet Total Vacancy Rental Area Total SF Direct Vacancy Sublet Vacancy Available 3Q09 Rates ** $1.50- Richmond * 2,153,517 605,724 28.13% 12,257 0.57% 617,981 28.70% $1.85 $1.75- Berkeley 2,558,666 324,364 12.68% 75,709 2.96% 400,073 15.64% $2.45 $2.00- Emeryville - Class A 2,557,268 335,534 13.12% 179,060 7.00% 514,594 20.12% $2.35 $1.50- Emeryville - Class B 1,331,081 183,504 13.79% 8,093 0.61% 191,597 14.39% $1.75 $2.35- Oakland - Class A 6,227,704 740,444 11.89% 136,506 2.19% 876,950 14.08% $2.95 $1.50- Oakland - Class B 2,972,483 726,268 24.43% 37,925 1.28% 764,193 25.71% $2.25 $1.55- Oakland Airport 1,975,828 544,646 27.57% 24,520 1.24% 569,166 28.81% $1.95 $1.50- Jack London Square - Oakland 1,435,330 276,202 19.24% 13,944 0.97% 290,146 20.21% $3.00 $1.65- Alameda - Harbor Bay 1,840,329 282,528 15.35% 40,712 2.21% 323,240 17.56% $1.85 $1.60- Alameda - Marina Village 1,659,874 441,902 26.62% 20,254 1.22% 462,156 27.84% $2.00 TOTAL: 24,712,080 4,461,116 18.05% 548,980 2.22% 5,010,096 20.27% * (Includes R&D Space) ** (Rental Rates are Class “A” Fully Serviced, except Class “B” Emeryville and Oakland) OFFICE ABSORPTION 1st Quarter YTD Year Year Area 2010 2009 2008 2007 Richmond * 2,080 (85,675) (85,099) 78,183 Berkeley (13,231) (4,841) (70,908) 41,689 Emeryville Class A (46,856) 42,537 (48,752) 23,552 Emeryville Class B (46,826) 32,503 (33,859) 49,232 Oakland - Class A 77,162 (201,667) (43,524) 275,349 Oakland - Class B (907) (9,238) (36,539) 46,380 Oakland Airport (94,812) 74,718 (176,031) (51,405) Jack London Square - Oakland 19,326 (48,993) 7,077 26,797 Alameda - Harbor Bay (19,500) 47,940 (55,280) 122,545 Alameda - Marina Village 97,573 (100,800) (133,081) 117,391 METROPOLITAN TOTAL: (25,991`) (253,516) (675,996) 729,713 THE INFORMATION CONTAINED HEREIN WHILE NOT GUARANTEED HAS BEEN SECURED BY SOURCES WE DEEM RELIABLE. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO LEASE OR SALE SOURCE: CORNISH & CAREY COMMERCIAL – 5980 HORTON STREET, SUITE 100, EMERYVILLE, CA 94608 510.923.6200 FAX 510.923.6260 5
  • 8. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE MARKET HIGHLIGHTS Building Tenant Landlord City Size 1451 Harbor Bay Parkway Kaiser Permanente Limar Realty Corporation Alameda 65,000 (Renewal) 2000 Powell Street Gracenote US Bank Emeryville 48,000 1300 Clay Street US Bankruptcy Court Shorenstein Oakland 38,877 (Renewal) 2100 Franklin Social Security Administration CIM Group Oakland 35,000 2100 Milvia MSCI Barra SRM Berkeley 34,000 (Renewal) 1111 Broadway UC Office of the President Shorenstein Oakland 23,000 300 Lakeside Drive Foley & Mansfield SWIG Oakland 23,000 (Renewal) 66 Franklin Street Sungevity Ellis Parnters Oakland 20,000 505 14th Street DeVry University Shorenstein Oakland 15,768 1300 Clay Street Offices of Ben Berwick, Inc. Shorenstein Oakland 14,996 6001 Shellmound Street Random House TMG Partners Emeryville 9,162 LARGEST FISRT QUARTER 2010 OFFICE SALE TRANSACTIONS Building Seller Buyer City Size (SF) 600-610 16th Street Affinity Bank AB Chestnut LC Oakland 65,974 80 Swan Way Credit Swiss Hamilton Zanz Oakland 52,544 SIGNIFICANT FIRST QUARTER 2010 OFFICE AVAILABILITIES Building City Size (SF) Availability Direct/Sublease 1945 Broadway Oakland 200,000 Now Direct 2600 Hilltop Drive Richmond 150,000 (labs) Now Direct 2100 Franklin Oakland 142,000 Now Direct 55 Harrison Oakland 100,000 Now Direct 4655-4677 Meade St Richmond 82,000 (labs) Now Direct 2100 Powell Street Emeryville 75,000 Now Sublease 1201 Harbor Bay Parkway Alameda 61,000 (labs) Now Direct 1999 Harrison Street Oakland 61,000 Now Sublease 880 Harbour Way South Richmond 60,000 Now Direct 1111 Broadway Oakland 60,000 Now Sublease 1608 Fourth Street Berkeley 58,281 Now Sublease 6
  • 9. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE HISTORICAL STATISTICS Year Quarter Inventory Direct Available Sublease Available Vacancy Absorption Rental Rates* 2001 2001/Q1 21,960,741 2,182,095 518,157 12.30% (601,056) $3.15 2001/Q2 21,861,666 2,107,121 842,519 13.49% (49,448) $3.00 2001/Q3 22,099,492 2,121,551 1,513,815 16.45% (654,145) $2.65 2001/Q4 22,337,318 2,943,630 1,468,472 19.75% (956,094) $2.55 2002 2002/Q1 22,697,258 3,288,485 1,391,274 20.62% (138,794) $2.10 2002/Q2 22,793,133 3,644,727 1,479,172 22.48% (348,175) $2.00 2002/Q3 22,793,133 3,688,676 1,514,435 22.83% (79,302) $1.85 2002/Q4 22,804,596 3,692,737 1,441,720 22.52% 48,768 $1.95 2003 2003/Q1 22,810,966 3,587,822 1,734,957 24.47% (189,578) $1.90 2003/Q2 22,810,966 3,603,370 1,851,034 23.91% (131,622) $1.85 2003/Q3 23,071,869 3,865,721 1,438,000 22.99% 356,372 $1.75 2003/Q4 23,076,486 3,805,828 1,378,922 22.47% 118,961 $1.75 2004 2004/Q1 22,988,486 3,602,772 1,421,122 21.85% 161,323 $1.65 2004/Q2 23,088,553 3,901,125 1,194,400 21.57% 73,363 $1.65 2004/Q3 25,944,650 4,213,810 1,047,373 20.28% 163,192 $1.70 2004/Q4 25,756,180 4,364,608 851,531 20.25% 122,881 $1.75 2005 2005/Q1 26,100,228 4,254,204 825,622 16.30% 271,398 $1.85 2005/Q2 25,498,654 3,947,467 882,868 18.94% 197,291 $1.95 2005/Q3 25,496,633 3,730,235 821,619 17.85% 278,490 $2.20 2005/Q4 25,429,849 3,656,601 779,369 17.44% 115,884 $2.35 2006 2006/Q1 25,429,849 3,568,831 765,385 17.04% 101,754 $2.45 2006/Q2 25,566,765 3,659,578 692,945 17.02% (18,299) $2.50 2006/Q3 25,532,623 3,609,841 507,798 16.13% 254,890 $2.60 2006/Q4 25,536,582 3,562,062 399,933 15.51% 328,290 $2.70 2007 2007/Q1 25,552,224 3,482,140 519,873 15.66% 111,982 $2.80 2007/Q2 25,552,224 3,497,873 500,096 15.65% 6,185 $2.85 2007/Q3 25,792,224 3,662,587 557,460 16.36% 23,010 $2.85 2007/Q4 26,089,061 3,746,922 544,061 16.45% 227,215 $2.85 2008 2008/Q1 26,030,198 3,841,106 593,005 17.03% (237,306) $2.85 2008/Q2 25,982,846 4,046,533 485,143 15.57% (132,438) $2.80 2008/Q3 25,924,053 4,251,529 384,686 17.88% (104,910) $2.70 2008/Q4 25,937,721 4,292,569 450,818 18.29% (117,172) $2.60 2009 2009/Q1 25,799,610 4,485,101 430,793 19.05% (172,499) $2.50 2009/Q2 25,628,459 4,355,712 520,272 19.03% (72,663) $2.40 2009/Q3 25,798,455 4,346,253 589,036 19.13% (34,694) $2.35 2009/Q4 24,711,629 4,478,717 529,518 20.27% (117,625) $2.35 2010 2010/Q1 24,712,080 4,461,116 548,980 20.27% (25,991) $2.35 *Class A, Fully Serviced CLASS A HISTORICAL VACANCY RATES (%) VS. AVERAGE RENTAL RATES ($/SF/MONTH) 30.00% $4.00 25.00% $3.50 20.00% $3.00 Vacancy Rate Rental Rate 15.00% $2.50 10.00% $2.00 5.00% $1.50 0.00% $1.00 Vacancy Rates Rental Rates 7
  • 10. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE HISTORICAL STATISTICS Historical Direct Availability (SF) vs. Sublease Availablity (SF) 5,000,000 4,500,000 Direct 4,000,000 Sublease 3,500,000 3,000,000 Available Space (SF) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Historical Net Absorption (SF) vs. Vacancy Rates (%) 600,000 30.00% 400,000 25.00% 200,000 0 20.00% Vacancy Rate Absorption (200,000) 15.00% (400,000) (600,000) 10.00% (800,000) 5.00% (1,000,000) (1,200,000) 0.00% Absorption Vacancy Rate 8
  • 11. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY TENANT ACTIVITY – YTD 1Q10 BUILDING CITY PREVIOUS LOCATION TENANT LANDLORD SIZE (SF) 1 2000 Powell Street Emeryville Expansion Sony Corporation (Gracenote) US Bank 48,000 2 1300 Clay Street Oakland Renewal US Bankruptcy Courts Shorenstein 38,077 3 2100 Milvia Street Berkeley Downsize MSCI Barra SRM 34,148 4 2100 Franklin Street Oakland Richmond GSA - Social Security CIM 30,000 5 1111 Broadway Oakland Renewal US Treasurers Office Shorenstein 22,980 6 7901 Oakport Oakland Concord ITT Educational Services Ardenbrook 20,000 7 66 Franklin Street Oakland Berkeley Sungevity Ellis Partners 19,326 8 505 14th Street Oakland New Location DeVry University Shorenstein 15,768 9 1300 Clay Street Oakland Expansion Ben Gerwick Shorenstein 14,996 10 427 13th Street Oakland Jack London Square Rumsey Engineers Leslie Bldg. Assoc. 13,522 50% of Tenants Renewed or 5 out of 10 10 Tenants Compiling 256,817 Total Square Feet 9
  • 12. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TENANTS IN THE MARKET – 1Q10 Tenant Demand by Submarket Desired Tenant Demand by Desired Size (Richmond to Oakland) 10
  • 13. EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TENANTS IN THE MARKET – 1Q10 Tenant Demand by Business Type (Number of requirements out of a total of 70) 11