Investor activity was prevalent throughout the last quarter of 2013. The most significant news reported was CBREI’s sale of its assets at City Center in Downtown Oakland. Harvest Properties purchased 487,224 square feet at 555 12th Street. Strada bought 169,847 square feet at 505 14th Street and 186,194 square feet at 1300 Clay Street. Ellis Partners bought 569,137 square feet at 1111 Broadway and STG bought the remainder of the City Square assets. Further, Beacon Capital Partners put 1999 Harrison Street on the market and is expected to close escrow sometime in early 2014. This represents more than 2 million square feet, 13 percent of the Downtown office market, of product changing hands in less than a quarter. Clearly, the institutional capital markets are jumping into the Oakland market with expectations that continued economic growth in the Bay Area, coupled with an over-heated real estate market in San Francisco will drive demand east and values up in Downtown Oakland.
Overall year-to date leasing activity in the region was 1,675,458 square feet with most submarkets posting positive absorption, mostly attributed to relocation by tenants in San Francisco to the East Bay. Despite sluggish absorption numbers, overall Metro Market rents have edged up from $2.00 Full Service (FS) at the end of 2012, to $2.07 Full Service (FS) per square foot per month (psf/mo) on a weighted average asking rate basis. With Downtown Oakland shining over the course of the year posting a positive net absorption of 208,465 square feet, causing a 6.2 percent increase in Class A rents, compared to the 4.5 percent increase in rents across all submarkets and product types since year end 2012. Overall market vacancy has fluctuated throughout 2013 between 15.2 percent and 15.9 percent, rounding out the year at 15.7 percent.
We expect continued upward pressure on rents in all of the submarkets of the region with emphasis on the Downtown Oakland submarket as vacancy declines. San Francisco office and residential rental rates continue to escalate and are approaching all-time highs. Demand is far outpacing supply in both sectors and Oakland is once again poised to capture a majority of the migration out of San Francisco, where many large companies are beginning to explore the Oakland Market as a more cost effective alternative. While affordability is clearly a key factor, access to public transit and lifestyle will play a bigger role in attracting both apartment renters and office users.