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C+CT

Housing boom drives retail development in Oakland, Calif.

September 4, 2018

In 2013 HP Investors made a bet on downtown Oakland, Calif., opening an outpost there amid ­the high-rise office towers and the parking lots. In doing so, the real estate investment firm was not exactly following the herd. “What I saw was a city that many had passed over, yet it retained all those natural elements you look for when you think about the types of environments that are poised for growth,” said Isaac Abid, a partner at HP Investors, which opened its first office in San Diego before branching out to Oakland.

Oakland's Jack London Square

The firm’s instincts about Oakland have proved right. Over the past several years, the Bay Area’s explosive growth and a preference among many young adults for urban living have altered Oakland’s economic and demographic landscape dramatically. “As downtown San Francisco has emerged during this cycle as a magnet for the tech industry, Oakland has benefited, because it’s right across the Bay and very accessible,” said Abid, whose firm now owns 11 office and mixed-use properties in downtown Oakland.

In recent years Oakland’s labor force has grown, its unemployment rate has fallen, and the number of high school and college graduates living there has risen, according to the city’s economic development plan. In March the Oakland unemployment rate was only about 3 percent (not seasonally adjusted), according to the Bureau of Labor Statistics. The population, currently about 425,000, has grown by about 8 percent since 2010, according to the Census Bureau, and by 2031 the city is expected to become home to nearly 500,000 people.

Not surprisingly, a housing boom is under way in Oakland, where rents and single-family home prices, while rising, are still significantly lower than in ultra-expensive San Francisco. As of June, there were about 8,300 housing units under construction, according to city officials.

“In the second quarter of this year, the Oakland retail vacancy rate stood at just 2.7 percent”

Oakland’s vibrant culture and food scenes — along with its notable architecture and expansive public-transit system — have also helped make the city a destination for new residents, tourists, businesses and investors. “Initially, Oakland was more of a value decision, where office tenants were moving there because it was less expensive [than San Francisco],” said Laura Sagues, a San Francisco–based senior vice president with CBRE. “But that has shifted from a value decision to a lifestyle decision.”

Since 2010, Oakland has added roughly 4,000 businesses, an influx that has spurred office development, including many projects with street-level retail space. In the first quarter, the city boasted the lowest downtown office vacancy rate in the country, at 5.3 percent, according to CBRE.

About 1 million square feet of new commercial space, including some 240,000 square feet of retail space, will hit the Oakland market over the next few years, according to city officials. “One of the strengths of Oakland is that we have eight BART [Bay Area Rapid Transit] stations,” said Aliza Gallo, the city’s economic development coordinator. “Each of those stations presents an opportunity for transit-oriented development.”

Oakland’s public-transit system is being enhanced by the addition of a nearly 10-mile-long bus rapid-transit line. The BRT, as the new line is called, is scheduled for completion next year and will stretch from downtown Oakland to the San Leandro BART station.

 

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There is already plenty of development activity taking place near many of Oakland’s BART stations. In the Broadway-Valdez District, about a dozen projects of varying types near two busy BART stations are either under way, already completed or in the planning stage.

These projects are helping revitalize the neighborhood, creating more-affordable housing and piquing the interest of retailers. Roughly 100,000 square feet of retail space has already been developed in the neighborhood, and an additional 200,000 square feet is under construction.

“Oakland is definitely on the map among national retailers way more than it used to be,” said Keira Williams, a retail specialist with the city’s Economic & Workforce Development Department.

Oakland has about 55 shopping districts and roughly 50 regional and national retailers. Many neighborhoods are known for their boutiques, art galleries and pop-up shops, operated by local entrepreneurs and artisans.

Uptown Station will transform a former Sears building in the Uptown neighborhood into an eight-story, class-A creative office building with ground-floor retail space

Nonetheless, Oakland has been under-retailed since the 1960s, according to a 2008 city-commissioned study. That study found that Oakland leaks an estimated $1 billion per year in retail sales because residents frequently travel elsewhere to shop for certain basic goods and services, including apparel and home furnishings.

In the second quarter of this year, the Oakland retail vacancy rate stood at just 2.7 percent, according to CBRE, citing CoStar data. The retail vacancy rate in the downtown market was even tighter, at just 2.2 percent. These figures do not account for retail space in office buildings, but only at retail-specific properties.

Sagues says the city is getting a lot of attention from retailers, although many prospective tenants are leaning toward larger-scale commercial projects. “There is significant demand from retailers who understand that the buying power is there,” said Sagues, head of a San Francisco–based team that represents retail landlords and tenants in urban markets. “Projects with a bit more scale are appealing, because there is a potential for co-tenancy to exist there in the future. [Prospective tenants] want to be in the place that will be a main node of retail, office and residential.” Her team is handling the retail leasing for Oakland’s Uptown Station, a project that will transform a former Sears building in the Uptown neighborhood into an eight-story, class-A creative office building with ground-floor retail space.

The project, which sits atop the 19th Street BART station, is situated in an emerging residential neighborhood. Four apartment towers are under construction in the area, and 12 more are planned, according to CBRE. Uptown, once the city’s main shopping district, is already home to restaurants, boutiques, bars, a farmers market and two historic performing-arts spaces: the Paramount Theatre and the Fox Oakland Theatre.

“All of these apartment and office projects,” said Abid, “will deliver a supply of a couple hundred-thousand square feet of new retail space that will have the functional attributes to attract national tenants.”

By Anna Robaton

Contributor, Commerce + Communities Today

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