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I-680 Corridor Office Market Report

4th Quarter 2023

Posted In — Market Research | Market Report

In the fourth quarter of 2023, the Tri-Valley office market continued its trend of modestly increasing vacancy rates despite an increase in transaction volume.

This aligns with the prevailing real estate conditions in most markets as companies continue downsizing efforts. The vacancy rate for class A and B multi-tenant Tri-Valley office properties rose slightly from 25.01% to 25.94%. Despite this increase, rental rates remained flat quarter-over-quarter. Sublease space in the market, which decreased by 8.99% in the previous quarter, experienced a significant drop of 26.64% in the fourth quarter of 2023, reaching 978,702 square feet. Tri-Valley Office-flex space saw a slight increase of 10 basis points in vacancy, reaching 14.29%, following a small decrease in the third quarter.

Outside of renewals, which played a significant role in activity this quarter, tenants signing new leases have been focused on downsizing and signing short term leases in higher quality spaces in order to entice their smaller workforce back into the office. Prominent office /flex transactions for the quarter consist of Robert Half’s office lease at 3001 Bishop Drive in San Ramon for 73,067 SF. Robert Half downsized from Sycamore, formerly known as BR 3.

Additionally, Morgan Stanley renewed a lease at 4309 Hacienda Drive in Pleasanton for 20,655 SF of office space. As a part of a relocation from a San Carlos facility, Natera leased 16,319 SF of flex space at 5100 Franklin Drive in Pleasanton. After selling an occupied building to Fremont Bank, Shea Homes relocated from 2630 Shea Center Drive in Livermore to 14,569 SF of office space at 4309 Hacienda Drive in Pleasanton. Withum, Smith & Brown leased 12,807 SF of office at 6101 Bollinger Canyon Road in San Ramon after relocating from Canopy formerly known as BR 8. Lastly, Clapp Maroney renewed a lease at 5860 Owens Drive in Pleasanton for 11,757 SF of office space.

As the Tri-Valley office market experiences a rise in overall vacancy, reaching 25.94%, landlords are actively seeking innovative strategies to maximize returns on their investments. Some have gone as far as turning to rezoning and redeveloping properties, while others have turned to coworking companies to fill spaces. Rental rate decreases are an option that has yet to be explored and may be on the horizon soon. This oversupply is trending to continue, leading developers to put a pause on planned offices, possibly reevaluating their land investment entirely, even when the ground is ready for the planned properties to be built.

The Tri-Valley market saw a dip in office sales influenced by factors such as financing issues and decreased demand from prospective tenants. However, there were still noteworthy transactions that transpired this quarter. The most significant transaction of the quarter occurred in San Ramon at 2671 Crow Canyon Rd when 10,204 SF was purchased by Eyring Realty, Inc. from Quattro Development for $12.6MM. The Trumark Companies followed with a $11.5MM purchase of 50,835 SF from Sieva Networks Inc. at 2481 Deerwood Dr in San Ramon. Furthermore, Dr. Ron Hassanzadeh purchased 16,500 SF at 2355 San Ramon Valley Blvd in San Ramon from Sam Hirbod for $5.9MM. Cement Masons Local 300, Area 580 wrapped up the quarter’s most significant sale transactions with the purchase of 7,488 SF at 4495 Stoneridge Dr in Pleasanton from Future Innovations, Inc. for $3.1MM.

The activity in the 4th Quarter can be attributed to tenants seeking smaller spaces and buyers exercising caution due to rising interest rates and uncertainty of ROI as companies continue to enact work from home and hybrid work policies. Q1 projections are for activity to remain stagnant or see a marginal decrease, continued vacancy rises, and possible rental rate decreases as landlords come back to the table to make deals and fill spaces. Despite these difficulties, there is optimism for 2024, fueled by discussions of potential Federal Reserve rate cuts and the prospect of a presidential election year.

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