By Jacob Bourne
“The North I-680 corridor is in a state of transformation, which is very positive in terms of the area’s long term economic growth and health of the office market,” said Tom Fehr, executive vice president, Newmark Cornish & Carey. “We haven’t seen significant changes like this since the early 2000s.”
In Newmark Cornish & Carey’s North I-680 Q4 2016 market report for office and flex product, researchers highlighted positives for the overall area in terms of vacancy and other metrics, which haven’t been seen in past years. These trends have investors feeling more confident and secure and could lead to more significant changes in terms of the corridor’s positioning as a regional player. The submarkets examined in the report include Concord, Pleasant Hill, Walnut Creek, Lafayette and include local BART hubs.
Following limited activity between 2005 and 2015, 2016 was lively by comparison with plentiful deals and activity. New residential plus office and retail renovations have made developments more attractive to users putting upward pressure on rents. Overall, positive net absorption in Q4 totaled 51,638 square feet of leasable space. Total vacancy including subleases was 12.58 percent for the quarter, down from 18.46 percent in Q4 2013. Asking rents for Class A office range from $1.90 to $4.70 per square foot. The quarter was marked by changes in ownership, resulting in renovations and increased amenities, which upgraded the overall feel of the North I-680 corridor.
Adding to the appeal of the North I-680 market is that numerous multifamily developments have either been built or are in the pipeline, further increasing the desire for office space lease transactions. The area is also in close proximity to Solano and Contra Costa Counties, which offer relatively affordable housing options. With the Bay Area’s traffic congestion worsening, the emergence of North I-680 as an employment hub could be a promising option for those looking for rental savings as well as an easier commute.
“In the past 12 months numerous Class A office projects have traded and we expect more to trade in 2017,” Fehr explained. “These new owners are investing significant capital to upgrade these buildings. New fitness facilities, conferencing centers, outdoor space, common areas and restroom upgrades increase desirability. These landlords will push rental rates to ensure they get a reasonable return on their investment.”
These projects build upon existing successful retail centers in Downtown Walnut Creek. The City’s Broadway Plaza recently completed a $250 million renovation. In Concord, the Chevron office building was demolished and construction is underway on The Veranda, a 375,000 square foot retail development. Last year, the 192,000 square foot Orchards Shopping Center was also completed in Walnut Creek.
Several sizable sale and lease transactions occurred last quarter. Notably, Wells Fargo, N.A. is leasing 73,911 square feet from Brandywine Realty Trust in Concord. In Walnut Creek, CBRE Global Investors purchased a 394,123 square foot Class A asset from Tishman Speyer Properties for $131.9 million.
“We are becoming a more attractive alternative when you compare all the new development and worsening access to San Francisco and the balance of the Bay Area,” Fehr concluded. “If someone hasn’t been out here in five plus years it’s a much different market. It’s not just a sleepy suburban market anymore. As newness abounds, it’s becoming more of a dynamic urban area.”