The East Bay suburbs have benefitted from an increase in office tenants migrating from outside markets, according to a new report by brokerage CBRE. The trend stems from employees who desire to work closer to where they live.
The amount of space tenants are looking for increased to 2 million square feet in the first quarter, with 20 percent, or one fifth of active tenants coming from outside markets to the I-680 corridor, the report found.
The corridor runs along I-680 from Concord south through Walnut Creek and San Ramon and ends at Livermore. It’s just east of the I-580 corridor which contains larger, more urban cities such as Oakland and Hayward.
The report outlines that during the pandemic, which required employees to work remotely, many decided that they did not want a long commute anymore.
“Workers are used to working from home and having flexibility in their schedules, so the desire to spend more than an hour a day to commute to the office is a lot less than pre-pandemic,” Jeff Birnbaum from CBRE said.
Companies might prefer suburban markets as well, because office rents in suburban markets are generally lower than downtown urban markets.
“These tenants are also operating in a cost-conscious environment and office rents in Walnut Creek, for example, are lower than San Francisco,” Andy Schmitt from CBRE explained.
The average asking rent was a stark contrast in the two markets, with annual lease rates around $36 per square foot in the corridor and $74 per square foot in San Francisco, according to data collected by Colliers.
A majority of tenants coming to the I-680 corridor are from San Francisco; however, there are a number coming from markets outside the Bay Area because “they want to recruit talent here,” Birnbaum said.
The largest new lease in the first quarter was by Berkshire Hathaway taking up 28,000 square feet in Walnut Creek, followed by Chipman Corporation leasing 12,000 square feet in San Ramon.
The current market has kept investment sales and leasing activity quiet to start the year, and that is expected to remain so throughout 2023, according to the report. When companies want to bring workers back to the office, they often look for attractive amenities, which might be easier to find in suburban settings.
“The idea of creating one area where people live, work and shop has been around for a while, but became more pronounced during the pandemic,” Schmitt said. “The Bay Area’s suburban markets provide access to great retail shops and restaurants, and there is a positive vibrancy to downtown suburban markets now that more companies have embraced hybrid work models.”
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