No vacancy: Office space in Oakland is tighter than ever


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If you're looking for premium office space in Oakland, you might want to look somewhere else.

The perennially tight office market there couldn't be much tighter, registering a zero vacancy rate for top Class A space in the last quarter, according to two real estate reports.

"In 20 years of doing commercial real estate, I don't think I've seen a zero vacancy rate in a significant market comparable to Oakland," said Aaron D. Stauber, president of New York-based Rugby Realty, which has extensive property holdings in Pittsburgh.

Oakland's vacancy rate is even more amazing, Mr. Stauber said, when compared with vacancy rates throughout the country and in some of the biggest cities that have been soaring as a result of the recession.

"In the context of what's happening in the rest of the country and the economy, it's mind-boggling," he said.

Fourth-quarter 2009 reports by the CoStar Group, a commercial real estate data firm, and CB Richard Ellis listed Oakland's Class A vacancy rate at zero. Another real estate firm, Grubb & Ellis, reported it at 2.8 percent, with all but 21,687 of 779,352 square feet of class A space taken. The vacancy rate for Class A space in Midtown Manhattan, by contrast, was 14.7 percent, according to one report.

"Zero is almost impossible to achieve, frankly. It's rare or an anomaly. You always have someone moving in or moving out. Traditionally, 96 to 97 percent is seen as 100 percent occupied," said Bill Hunt, president of the Elmhurst Group, which owns one fully occupied office building in Oakland.

Even after adding other classes of office space into the equation, Oakland still commands the lowest vacancy rate in the region, at 1.8 percent to 7.1 percent, depending on the report.

Factors filling Oakland nearly to the brim include the ever-growing demand for space by universities and medical institutions and the scarcity of private land available for new office development.

The high cost of building underground parking, a virtual must in Oakland, is a big factor in discouraging speculative office construction, said Jason Stewart, Grubb & Ellis vice president. He estimated that the cost of building one underground parking space could run $35,000 to $45,000.

The high demand for office space and the short supply have been a boon for Oakland landlords and merchants - as well as the Pittsburgh Technology Center and Downtown landlords, both of which offer an alternative to businesses, universities and others who can't find the space they want in Oakland.

Mr. Stauber said the region already has seen a spillover effect with the move of the UPMC headquarters to the U.S. Steel Tower, Downtown, and Google's move from Oakland to the Bakery Square development in Larimer, where it will be expanding.

"These are all indicators of what's going on," he said.

UPMC spokesman Paul Wood said one reason the health care giant moved its corporate offices to Downtown was to free up space for clinical services in Oakland.

"It's a great problem for the city of Pittsburgh to have," he said of Oakland's scarcity of space. "It's a sign of the relative economic strength of the region."

At the same time the lease rate for Class A space in Oakland - ranging from $24.30 a square foot in the Grubb & Ellis report to $27 a square foot in the CoStar report - was the highest in the region in the last quarter.

The $27 rate quoted by CoStar is up $1.25 a square foot from the first quarter of 2006, when the vacancy rate was 3.5 percent. Mr. Stauber said he has been told that some of the latest deals involve rents above $30 a square foot.

Georgia Petropoulos Muir, executive director of the Oakland Business Improvement District, said the low vacancy rates have been a "win-win" for landlords and merchants. While landlords don't have to worry about filling their space, retailers and restaurants benefit from the steady foot traffic from the universities, hospitals and private offices, she said.

"I'd love to see all my space filled," she said.

She added that while the office market is tight, especially for the premium space, there are vacancies, particularly in some of the smaller buildings with less than 10,000 square feet.

"If there's anyone out there looking to locate an office in Oakland, yes, there are properties [available]," she said.

For those seeking coveted premium space, some help could be on the way.

Oakland Portal Partners has revived plans for office buildings and a hotel on land bounded by Fifth, Forbes and Craft avenues. Known as the Oakland Portal project, the proposal includes three buildings totaling 375,000 square feet, along with underground parking.

The project had been on hold because of difficulties in securing financing.

However, Frank Gustine Jr., one of the partners, said the financing market had improved and the group was looking to move ahead.

It hopes to build Class A space, aware of the short supply and high demand.

"We're getting our financing arranged. We're talking to people about that. We think we have a great site," Mr. Gustine said, adding FWG hopes to be in the position to announce a groundbreaking by spring or summer.

A group of developers, including Massaro Properties and Langholz Wilson Ellis, also is negotiating with Allegheny County to buy the Health Department building and property at 3333 Forbes Ave. in Oakland with plans to redevelop it into a hotel, office building and garage.

Elmhurst has plans to build a seven-story office building at Ruskin Avenue and Bayard Street later this year. Mr. Hunt said the development, which will include underground parking, would cost "north of $20 million."

With so little nonuniversity land available for use, Mr. Hunt predicted that developers soon would start to look to tear down older obsolete buildings to build new space.

Given the tight office market in Oakland, the bid by a county task force to create a public-private partnership to build a transit line linking Downtown and Oakland resonated with Mr. Stewart and Mr. Stauber.

"It's potentially a great relief valve for Oakland. Its users can look at Downtown now as being more accessible without having to depend on parking in Downtown or bus service," Mr. Stewart said.

"Oakland and Downtown ... they're almost symbiotic. The only thing lacking right now is a transportation system," Mr. Stauber added.

For the time being, though, it could be slim pickings in Oakland, particularly for users of Class A office space. Mr. Stewart, for one, doesn't see the factors creating the crunch changing anytime soon, meaning space will continue to be at a premium.

"The cost to build parking won't go down, and nobody's making land," he said.


Correction/Clarification: (Published Feb. 26, 2010) Oakland Portal Partners is the group proposing to build office buildings and a hotel in Oakland on land bounded by Fifth, Forbes and Craft avenues. The group was misidentified in this story as originally published Feb. 25, 2010.

Mark Belko: mbelko@post-gazette.com or 412-263-1262. First Published February 25, 2010 5:00 AM


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