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Berkeley Office Vacancies Plunge; City Has Lowest East Bay Rates

By Richard Brenneman
Tuesday November 21, 2006

Vacant office space in Berkeley is growing scarce, says commercial real estate broker John Gordon. 

“We’re seeing vacancies going down and the quality of space going up,” said Gordon, himself a major downtown landlord. 

Gordon put the current vacancy rate for the city center at 8.9 percent, while NAIBT Commercial Real Estate, an international firm with a strong Bay Area presence, puts the downtown Berkeley rate at 8.3 percent. 

NAIBT puts the office vacancy rate for West Berkeley at 4.7 percent, while Gordon doesn’t track the area. 

Colliers International, another brokerage, offers figures for two types of offices, Class A and Classes B/C and Flex. They show a downtown Class A vacancy rate of 18 percent, with a 13 percent figure for the other classes. There is no Class A figure for West Berkeley, while the rate for the other classes is listed as 11.4 percent. 

“Colliers has their own way of calculating,” said Gordon. 

A fourth firm with an international reach, Grubb & Ellis, provides only a figure for the city as a whole and offers an estimate of 10.4 percent. 

“Grubb & Ellis has absolutely no presence in the (local) marketplace,” said Gordon. 

Berkeley’s vacancies are the lowest or near the bottom for East Bay cities, according to the chain evaluations. Grubb & Ellis reports that only Hayward has a lower vacancy rate than downtown Berkeley, and nowhere else has a lower rate than West Berkeley in both the Colliers and NAIBT figures. 

Vacancy rates have dropped significantly since the end of 2003, when NAIBT in its earlier incarnation as BT Commercial Real Estate estimated downtown vacancies at 12.25 percent and gave a figure for 11.46 percent for West Berkeley. 

The lowest rates that firm recorded in recent years came in 2000, when BT estimated the downtown rate at 2.21 percent and set West Berkeley vacancies at 3.62 percent. 

The dot-com collapse that year witnessed the bankruptcy of a legion of high-tech firms capitalizing on the expanding Internet, resulting in massive layoffs and sending the office market into a tailspin. 

“That’s over now, and Web 2.0 is coming on,” said Gordon, referring to the new Internet and technology boom. “We’re seeing a lot more high-tech jobs,” he said, many with companies working in connection with academic departments at UC Berkeley. 

“We’re seeing vacancies going down and the quality of the space going up. Owners are locking in their space” with long-term leases, and the lack of new office construction is tightening the market even further, Gordon said. 

With heightened demand comes an increase in rents, though still not up to the record highs charged before the dotcom collapse. 

NAIBT reports that current the average rent per square foot for the downtown is $2.47, compared to $2.04 at the end of 2003 and $3.29 in 2000. West Berkeley rents average $1.67, while the equivalent space rented for $1.82 in the fourth quarter of 2003 and $2.81 in 2000.  

Another big winner has been Emeryville, once dubbed “Emptyville” because of its vacancies. While the empty space rate had once topped 30 percent, NAIBT estimated vacancies for the third quarter of this year at 9.7 percent. 

Michael Caplan, recently appointed as acting head of the city’s Economic Development Department, said Berkeley has traditionally had low vacancy rates, in part because of the limited numbers of offices available. 

“If a firm wants to locate in Berkeley, there are not a lot of choices,” he said. 

Rates can also vary drastically because the move of a single large tenant will impact the numbers more than a similar move in a city with more spaces. 

Caplan will include figures on office spaces among the other economic indicators he’ll be reporting to the city council on a quarterly basis. 

He said the city hopes to come up with its own numbers for office vacancies and other indicators, and to provide breakdowns for individual neighborhoods and districts.  


Whither offices? 

An ongoing discussion among citizens working to help the city draft a new plan for the downtown area has focused on offices and whether the plan should emphasize offices or housing as the major tenants for new downtown construction. 

City planner Matt Taecker, hired with university funds to help draft the new plan, drafted several scenarios for consideration by the Downtown Area Plan Advisory Committee (DAPAC). 

That group, appointed by the Berkeley City Council, is advising city staff on elements to include in the new plan, which was mandated because of city lawsuit challenging the university’s expansion plans through 2020. 

UC Berkeley plans to add a million square feet in new uses downtown, much of it in offices. The university’s plans include demolition of the old California Department of Health Services highrise  

Taecker’s scenarios, presented at the Nov. 1 committee meeting, included one full-page treatment dubbed “Employment Emphasis” which emphasized “new regional office space” as a key component of a transformed downtown. 

That scenario placed new office buildings along University and Shattuck avenues—including new highrises. 

The committee derailed the discussion by a vote which determined that members should first adopt an overall vision statement before launching into a discussion of specific alternatives. 

Gordon says offices are a good way for the downtown to go, but added that current zoning laws favor housing over office space. A key factor, he said, is the density bonus, which allows developers of mixed used projects which place apartments or condos over ground floor commercial space to add height above limits that are strictly applied to office buildings. 

Another factor, he said, is parking. Office developers have to provide 1.5 parking spaces for every 1,000 square feet of office space, while housing builders can get away with less. Gordon noted that the demand for offices is highest for space that is close to BART.  

“As long as the zoning is the way it is, you’ll get more housing,” he said. “But to me, that’s backwards. People like housing downtown because they don’t have to drive to work.”