Q3 2012 | Office
Pleasanton | Alameda County, California
research & forecast Report
Office Market Review Tri-Valley The Tri-Valley Class A office market vacancy is slowly creeping its way to single digit rates. Currently the Tri-Valley Class A office market vacancy sits at 10.1 percent, down from 11.3 percent last quarter and from 13.1 percent one year ago. The Tri-Valley Class A’s office net absorption also moved in a positive direction from negative 25,213 square feet in the prior quarter to 167,464 square feet this quarter. As explained previously, the dip in what seemed to be an improving trend in net absorption was stifled last quarter by some hefty-sized blocks of space being placed onto the market. Gross absorption for the Tri-Valley Class A office market also showed improvement from 1,024,141 square feet during the third quarter of 2011 to 1,215,724 square feet this quarter. market indicators Projected
Q3-12
Q4-12
VACANCY NET ABSORPTION construction Rental rate
Selected Market Stats > The Tri-Valley Class A office market’s
vacancy sits at 10.1 percent, down from 11.3 percent last quarter. > Net absorption moved in a positive
direction from negative 25,213 square feet in the prior quarter to 167,464 square feet this quarter. > Overall weighted average asking rates
increased from $1.99 per square foot full service three months ago to $2.05 per square foot full service in the current quarter. > Alameda County’s unemployment rate is
9.3 percent as of August 2012* *SOURCE: CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT
Another optimistic statistic for the Tri-Valley Class A office market’s recovery and growth is represented by the increase in average weighted asking rates from $1.90 per square foot full service twelve months ago to $1.99 per square foot full service three months ago to $2.05 per square foot full service in the current quarter. Market predictions also indicate that average weighted asking rates will continue to climb and could bump by $0.10-$0.15 per square foot full service in the next six months with tightening supply of large blocks of Class A office space. Each of the previously mentioned indicators are all moving in the right direction and indicate a strengthening market, which will presumably be capped off by a similarly solid fourth quarter. In the third quarter of 2012, there was one owner/user sale transaction completed. Searchlight Property Management LLC purchased a 5,457 square foot unit at Birch Lakes from Fernwood, Bruns and Bertolotti. The closing price indicates a solid appreciation in value as compared with most sales transactions completed in the market over the past five years. Historical vacancy and average asking rates 20%
$2.10 $2.05
16%
$2.00 $1.95
12%
$1.90 $1.85
8%
$1.80 $1.75
4%
$1.70 $1.65
0%
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
Vacancy Rate Series1
www.colliers.com/pleasanton
1Q 2012 Series2
2Q 2012
3Q 2012
Asking Rate
$1.60
Market predictions also indicate that average weighted asking rates will continue to climb and could bump by $0.10-$0.15 per square foot full service in the next six months.
research & forecast report | Q3 2012 | Office
Pleasanton Five years ago at the crux of the economic crash, the Pleasanton Class A office market had 516,288 square feet of vacant space (8.4 percent vacancy). Today, vacancy is perched at 16.6 percent, down from 17.8 percent last quarter. As the vacancy rate has slowly bobbed its way down to its present rate, it is still a far cry from where things stood prior to the economic bust. However, as discussed in our second quarter 2012 report, California Center continues to weigh down the rest of the Pleasanton Class A office market with its significant vacancy.
SAN RAMON 20 miles to Walnut Creek
DUBLIN
40 miles to San Francisco
PLEASANTON
LIVERMORE
30 miles to San Jose
“The Tri-Valley commercial real estate market is undoubtedly seeing strong signs of improvement in what has been a highly wavering and unsteady recovery out of the economic crash a half decade ago.”
If California Center was removed from the picture, Pleasanton’s Class A office vacancy would be 6.2 percent, down from 7.8 percent in the previous quarter and more indicative of the true health of the Pleasanton Class A office market. Pleasanton’s Class A office net absorption also improved from negative 58,113 square feet three months ago to positive 56,484 square feet currently. Gross absorption also stood on trend coming in at 230,202 square feet as compared year-over-year at 272,946 square feet. Pleasanton’s Class A office gross absorption was comprised of healthy activity across almost all of the Class A buildings: Stoneridge Tower completed 16,012 square feet of new deals, Stoneridge Corporate Plaza completed 11,166 square feet of leasing, Bernal Corporate Park inked 14,944 square feet of leases, Hacienda Terrace signed up 12,325 square feet of new tenants and Hacienda West executed 24,138 square feet worth of deals which included the largest Lease (by size); ServiceMax Inc. signing for 17,451 square feet. Pleasanton’s Class A office market’s average weighted asking rates also tip-toed up to $2.04 per square foot full service from $2.03 per square foot full service last quarter, however, still not near pre-crash rates of $2.36 per square foot full service five years ago. Historical vacancy and average asking rates 20%
$2.10 $2.05
16%
$2.00 $1.95
12%
$1.90 $1.85
8%
Pleasanton’s Class A office market’s average weighted asking rates also tip-toed up to $2.04 per square foot full service from $2.03 per square foot full service last quarter, however, still not near pre-crash rates of $2.36 per square foot full service five years ago.
$1.80 $1.75
4%
$1.70 $1.65
0%
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
Series1 Vacancy Rate
1Q 2012 Series2
2Q 2012
3Q 2012
$1.60
Asking Rate
Dublin Once again, the Dublin Class A office market stood static reporting an unchanged vacancy rate from the second quarter of 2012 at 4.2 percent or 61,810 square feet. With the small size of the Dublin Class A office market (approximately 1,500,000 square feet) and already low vacancy, it is not surprising to see little change here. Two years ago the Dublin Class A office market featured a 23.4 percent vacancy rate, so although its vacancy is currently sitting pretty it had a mountain to conquer. Dublin’s third quarter Class A office net absorption is 0 square feet, down from 18,124 square feet last quarter. Gross absorption is almost double that of the much larger (approximately 6,200,000 square foot) Pleasanton Class A office market at 416,092 square feet from 274,764 square feet one year ago. Interestingly, Dublin’s Class A office average weighted asking rate fell from $2.14 per square foot full service one quarter ago to $2.07 per square foot full service this quarter.
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| Colliers International - Pleasanton
research & forecast report | Q3 2012 | Office
San Ramon The San Ramon Class A office market has shown the most progressively steady improvement annually compared to all other Tri-Valley Class A office submarkets. Currently, the San Ramon Class A office market vacancy is 5.9 percent down from 7.4 percent in the previous quarter and from 9.5 percent four quarters ago. Net absorption has also remained positive at 110,980 square feet today from 14,776 square feet last quarter. San Ramon’s Class A office gross absorption even beat its year-over-year numbers coming in at a strong 569,430 square feet from 476,431 square feet. Legacy Partners’ Legacy San Ramon completed 19,871 square feet of new lease transactions, with the bulk of activity coming from Bishop Ranch. Bechtel National Corporation signed at Bishop Ranch 6 for 19,724 square feet, Pacific Gas & Electric Corporation penned their 106,673 square foot lease at Bishop Ranch 1 (sublease from Audatex North America Inc.) and Kraft Foods Inc. decided to make Bishop Ranch 15 their home with 11,474 square feet. The vigorous activity at Bishop Ranch over the past nine months, is providing great signs of optimism and growth for the entire TriValley Class A office market. San Ramon’s Class A office average weighted asking rates moved upwards from $1.84 per square foot full service one year ago to $1.89 per square foot full service three months ago to $2.06 per square foot full service
presently. The $0.17 per square foot full service jump since the last quarter may be indicative of how quickly rates could move in this market over a fairly short time horizon.
Livermore During the third quarter of 2012, the Livermore office and office/flex markets remain basically flat, with a half of a percent uptick in vacancy. While the gross absorption year-to-date is positive 181,261 square feet, the net absorption year-to-date is negative 37,603 square feet. These numbers should change, as the Livermore Charter Schools’ close of escrow on sixteen stand-alone buildings at Montevina (Airway Boulevard and I-580) will absorb 100,000 square feet of vacant flex and office buildings. Vertical Ventures Capital LLC and their joint-venture equity partner purchased five buildings totaling 207,806 square feet at Pacific Corporate Commons for an undisclosed price. FormFactor is the primary tenant leasing four of the five buildings on a long-term basis. This was a large leased investment sale that demonstrates Livermore remains a popular choice for well capitalized investors. Still, the Livermore office and office/ flex market, at approximately ten percent of the total 27,355,147 square feet of Tri-Valley inventory, is a relatively small segment of the overall market. Property owners of this market type product are anxiously awaiting the outcome of the November 6th election, when Measure B1 will be put in front of the voters to encourage the expediting of BART to West Livermore.
significant deals Sale activity PROPERTY ADDRESS
SALE DATE
Square feet
BUYER
type
7005-7545 Southfront Road
Aug-12
207,806
Vertical Ventures LLC
R&D/Flex
7011 Koll Center Parkway
Aug-12
5,457
Searchlight Property Management LLC
Class B
significant deals Lease activity PROPERTY ADDRESS
Lease Date
square feet
tenant
type
6111 Bollinger Canyon Road
Sep-12
106,673
Pacific Gas & Electric Company
Class A
2430 Camino Ramon
Aug-12
19,724
Bechtel National Corporation
Class A
3875 Hopyard Road
Jul-12
17,451
ServiceMax Inc
Class A
4457 Willow Road
Aug-12
15,911
Neotract*
Class B
6723 Sierra Court
Aug-12
14,711
Cannon Business Solutions Inc*
Office/Flex
6723 Sierra Court
Sep-12
13,825
ZELTIQ Aesthestics Inc*
Office/Flex
6940 Koll Center Parkway
Aug-12
12,326
Gregg Jefferies Sports Academy
Office/Flex
12677 Alcosta Boulevard
Jul-12
11,474
Kraft Foods Inc
Class A
3825 Hopyard Road
Sep-12
11,255
Standard Pacific Homes*
Class A
4511 Willow Road
Aug-12
11,226
Sunblet Controls
Office/Flex
4900 Hopyard Road
Aug-12
10,935
Sensiba San Filippo LLP
Class A
* Renewal Colliers International - Pleasanton |
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research & forecast report | Q3 2012 | Office Market Comparisons Office market Type
Total Bldgs Inventory SF
Direct Direct Vacancy Vacant SF Rate
Sublease Vacant SF
Sublease Vacancy Rate
Total Vacant SF
Vacancy Rate Current Quarter
Vacancy Rate Prior Quarter
Occupied Space Sf
Net Absorption Current Qtr SF
Net Absorption YTD SF
GROSS COMPLETIONS ABSORPTION CURRENT YTD SF QTR
Under Const SF
Weighted Avg Asking Rental Rate FSG
Dublin A
10
1,488,260
61,810
4.2%
-
0.0%
61,810
4.2%
4.2%
1,426,450
-
141,184
416,092
-
-
$2.07
B
15
409,543
120,106
29.3%
-
0.0%
120,106
29.3%
30.4%
289,437
4,507
1,410
39,962
-
-
$1.39
Flex
24
869,016
89,050
10.2%
-
0.0%
89,050
10.2%
7.5%
779,966
(23,519)
(19,460)
10,863
-
-
$1.47
Total
49
2,766,819
270,966
9.8%
-
0.0%
270,966
9.8%
9.1%
2,495,853
(19,012)
123,134
466,917
-
-
$1.57
820,216
225,699
27.5%
22,775
2.8%
248,474
30.3%
30.7%
571,742
3,591
(9,196)
44,302
-
-
$1.09
Livermore B
22
Flex
70
2,043,065
488,490
23.9%
-
0.0%
488,490
23.9%
23.0%
1,554,575
(19,423)
(28,407)
136,959
-
-
$1.36
Total
92
2,863,281
714,189
24.9%
22,775
0.8%
736,964
25.7%
25.2%
2,126,317
(15,832)
(37,603)
181,261
-
-
$1.27
6,189,219
980,710
15.8%
44,679
0.7%
1,025,389
16.6%
17.5%
5,163,830
56,484
14,820
230,202
-
-
$2.04
Pleasanton A
47
B
68
2,748,385
417,658
15.2%
34,187
1.2%
451,845
16.4%
16.8%
2,296,540
10,021
96,647
315,919
-
64,474
$1.67
Flex
97
3,475,957
420,262
12.1%
11,877
0.3%
432,139
12.4%
13.3%
3,043,818
29,305
64,486
195,735
-
-
$1.53
Total
212
12,413,561
1,818,630
14.7%
90,743
0.7%
1,909,373
15.4%
16.2%
10,504,188
95,810
175,953
741,856
-
64,474
$1.84
San Ramon A
31
7,564,037
415,742
5.5%
31,550
0.4%
447,292
5.9%
7.4%
7,116,745
110,980
189,926
569,430
-
-
$2.06
B
28
1,041,781
133,566
12.8%
5,523
0.5%
139,089
13.4%
14.8%
902,692
14,641
(18,253)
33,643
-
-
$1.59
Flex
9
705,668
91,891
13.0%
-
0.0%
91,891
13.0%
13.0%
613,777
-
(10,910)
2,990
-
-
$1.47
Total
68
9,311,486
641,199
6.9%
37,073
0.4%
678,272
7.3%
8.6%
8,633,214
125,621
160,763
606,063
-
-
$1.88
MARKET TOTAL A
88
15,241,516
1,458,262
9.6%
76,229
0.5%
1,534,491
10.1%
11.2%
13,707,025
167,464
345,930
1,215,724
-
-
$2.05
B
133
5,019,925
897,029
17.9%
62,485
1.2%
959,514
19.1%
19.8%
4,060,411
32,760
70,608
433,826
-
64,474
$1.47
Flex
200
7,093,706
1,089,693
15.4%
11,877
0.2%
1,101,570
15.5%
15.3%
5,992,136
(13,637)
5,709
346,547
-
-
$1.44
Total
421
27,355,147
3,444,984
12.6%
150,591
0.6%
3,595,575
13.1%
13.8%
23,759,572
186,587
422,247
1,996,097
-
64,474
$1.71
150,591
0.6%
3,595,575
13.1%
13.8%
23,759,572
186,587
422,247
1,996,097
-
64,474
$1.71
QUARTERLY COMPARISON AND TOTALS Q3-12
421
27,355,147
3,444,984
12.6%
Q2-12
421
27,355,147
3,601,430
13.2%
180,732
0.7%
3,782,162
13.8%
14.1%
23,572,985
80,033
235,660
1,541,617
-
64,474
$1.73
Q1-12
421
27,355,147
3,647,213
13.3%
214,982
0.8%
3,862,195
14.1%
14.7%
23,492,952
155,627
155,627
1,095,000
-
64,474
$1.69
Q4-11
422
27,387,519
3,824,211
14.0%
193,611
0.7%
4,017,822
14.7%
15.7%
23,369,697
285,657
604,813
2,124,152
-
-
$1.64
Q3-11
422
27,387,519
4,109,593
15.0%
193,886
0.7%
4,303,479
15.7%
16.8%
23,084,040
288,832
319,156
1,671,696
-
-
$1.62
*Note: The weighted average asking rates for office/flex is converted to a full service equivalent
Bishop Ranch 1 - 6111 Bollinger Canyon Road PG&E signed a long-term lease relocating approximately 700 employees to the business park from various locations throughout the Bay Area.
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| Colliers International - Pleasanton
research & forecast report | Q3 2012 | Office
Looking Forward The Tri-Valley commercial real estate market is undoubtedly seeing strong signs of improvement in what has been a highly wavering and unsteady recovery out of the economic crash a half decade ago. Over the last nine months or so, the Tri-Valley commercial real estate market has seen an increase in tenant demand from tenants, new to the market. These tenants’ interest in the Tri-Valley is most pointedly due to the rising rents in San Francisco and the Peninsula office markets. Due to the escalating costs of both residential and commercial space in those markets, large global companies have decided to look elsewhere and take full advantage of the Tri-Valley’s lower office rents. New to the market tenant demand is probably one of the strongest indicators for growth, instead of the persistent inter-market tenant churn that had become so commonplace over the past five years. Companies like General Electric Global Research, GAP’s internet technology group, Bechtel National Corporation and Pacific Gas & Electric Corporation (new user group) are the most notable companies that have found themselves hunting for space in the Tri-Valley. What goes hand-in-hand with the aforementioned new tenants, are possible new demand from companies that act as support for and suppliers of their businesses. Additionally, when taking a closer look at the 10.1 percent Tri-Valley Class A office market vacancy, it is interesting to point out that there are just fifteen available spaces above 20,000 square feet. Most of the vacancy is tucked away in 142 available spaces less than 5,000 square feet. A tightening supply of large blocks of space (which is also where the recent hotbed of tenant demand sits) might lend itself to a jump, rather than a tick, in rental increases. There is the potential for some softening in the market, as large sublease availabilities have appeared; two spaces for greater than 20,000 square feet and five spaces for 10-20,000 square feet. However, the big picture for the condition of the Tri-Valley commercial real estate market remains much more positive than in past quarters and years. As the TriValley and East Bay markets generally grow out of housing cycles, it is encouraging to see that recovery has come without homebuilding activity. Although there will not be a huge pop in the Tri-Valley commercial real estate market like those seen in the San Francisco and Peninsula markets with billion dollar IPO’s and insta-millionaires, the signs for positive growth are upon us with tangible optimism for what is to come. As we round the corner to the last quarter of 2012, it is still very important to pay close attention to how the employment market, global economy and political environment behaves as they will continue to impact the Tri-Valley commercial real estate market.
522 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 • $1.8 billion in annual revenue • $1.25 billion square feet under management • Over 12,300 professionals pleasanton OFFICE: 5050 Hopyard Rd. Suite 180 Pleasanton, CA 94588 United States tel +1 925 463 2300 FAX +1 925 463 0747 MANAGING PARTNER Ted Helgans tel +1 925 227 6202
[email protected] CA License No. 00873026 RESEARCHER: Lisa Kohler tel +1 925 227 6236
[email protected] AUTHOR Loren Honda, CCIM Senior Associate tel +1 925 227 6261
[email protected] CA License No. 01796910 CONTRIBUTING AUTHOR (Livermore) Mark Triska, SIOR, SVP tel +1 925 227 6210
[email protected] CA License No. 01012779 This report and other research materials may be found on our website at www.colliers.com. This quarterly report is a research document of Colliers International Pleasanton, CA. Questions related to information herein should be directed to the Research Department at +1 925 227 6236. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof.
Accelerating success.
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