In Q2 2024, the Tri-Valley office market saw higher vacancy rates and negative net absorption, despite increased leasing activity.
This trend mirrors what many office markets are experiencing, as companies continue to downsize office space to adapt to remote work policies. Even with these challenges, rental rates remained steady year-over-year. The sublease market saw a 3.25% reduction in available space during the first quarter of 2024, reaching 962,668 square feet (SF). However, by the second quarter, sublease space increased by 5.68% to 1,020,726 SF. The vacancy rate for office-flex space in the Tri-Valley area also climbed by 27 basis points, reaching 16.92%, following a slight rise in the first quarter.
Tenants are increasingly opting for high-quality Class A office buildings in desirable locations, although overall leased space continues to decline. Despite more leasing volume this
quarter compared to last, negative net absorption indicates that the market is still struggling. Key office transactions in the quarter included Acco Engineered Systems leasing 67,462 SF at 5890 Owens Dr in Pleasanton, Sutter Health expanding into 64,222 SF at 4480 Willow Rd in Pleasanton for a surgery center, and Cooper Bussmann LLC renewing 23,304 SF at 5735 W Las Positas Blvd in Pleasanton.
SavvyMoney transitioned from a sublease to a direct lease for 18,740 SF at 4160 Dublin Blvd in Dublin, and Peoples Associates Structural Engineers, Inc. (PASE) expanded their space, leasing 7,630 SF at 2633 Camino Ramon in San Ramon.
Tenants are increasingly opting for high-quality Class A office buildings in desirable locations, although overall leased space continues to decline. Despite more leasing volume this quarter compared to last, negative net absorption indicates that the market is still struggling. Key office transactions in the quarter included Acco Engineered Systems leasing 67,462 SF at 5890 Owens Dr in Pleasanton, Sutter Health expanding into 64,222 SF at 4480 Willow Rd in Pleasanton for a surgery center, and Cooper Bussmann LLC renewing 23,304 SF at 5735 W Las Positas Blvd in Pleasanton. SavvyMoney transitioned from a sublease to a direct lease for 18,740 SF at 4160 Dublin Blvd in Dublin, and Peoples Associates Structural Engineers, Inc. (PASE) expanded their space, leasing 7,630 SF at 2633 Camino Ramon in San Ramon.
With vacancy rates reaching 26.44%, rental prices have remained stable as landlords hold firm to avoid losses. However, if landlords don’t consider price reductions, the market may see more property sales as investors reassess assets bought at peak prices. The trend of downsizing due to remote work seems set to continue, pushing investors to adjust prices or face potential losses to attract tenants.
For the third consecutive quarter, the Tri-Valley market saw a rise in sold office square footage, driven by property owners selling at losses due to tenant vacancies. Notable transactions included the sale of 6200 Stoneridge Mall Rd in Pleasanton, where Nome Capital Partners purchased 595,600 SF of office space from UBS Realty Investors for $151.8 million. Additionally, the 14,588 SF office at 6111 Johnson Ct in Pleasanton sold for $4.7 million to Tarob Court Properties, and Rohit Patel acquired 6,240 SF at 2220-2228 Camino Ramon in San Ramon from Mind Craft Academy for $3.1 million.
Overall, the first quar ter’s activity reflected ongoing post-pandemic office market trends, with tenants adjusting space needs and owners selling at a loss due to fewer tenants. As economic uncertainty lingers, vacancy rates rise, and lenders remain cautious, the market is expected to see continued increases in vacancy, stable or reduced rental rates, and more office square footage sold.
These trends are emerging in the early stages of the 2024 election year, with some optimism for a potential economic rebound as the year progresses. This trend is expected to continue, leading to increased vacancy, more investor sales, and steady or reduced rental rates. These developments are just the initial phases of the 2024 election year, with optimism remaining for a potential economic comeback as the year progresses.
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