Oakland’s Supply Boom Moderates Rent Growth As Execs Stay Bullish On Multifamily
The flood of apartments coming online in Oakland these days tempers rent growth, but the positives can't be ignored, even by the city's multifamily developers, according to Lennar Multifamily Communities Northern California President Jesse Herzog.
Oakland saw a decade-high 2,000-plus apartments come online in 2019 and is expected to see several thousand more open each of the next several years, but LMC's NorCal lead says the national developer, which has a 31,000-unit development pipeline across the U.S., will take the tradeoff in the East Bay city.
"I think we’re counting between 2020 and 2023 about 9,000 units being delivered," Herzog said. "That definitely does moderate rent growth, but we believe it maximizes awesomeness of Oakland. It’s just more affordable. We have two projects now, and we're actively looking for more."
Herzog spoke alongside several panelists on Bisnow's Oakland State of the Market webinar Thursday. Each said they were bullish on the city despite the lack of precedent both for the coronavirus pandemic and Oakland's current supply growth for multifamily and office properties.
Panelists said what had made Oakland an increasingly attractive market before the pandemic is still largely present.
“Oakland’s strengths are still its strengths," JRDV Urban International principal Edward McFarlan said. "It's a live-work downtown, which is unique. It's much better-positioned in some ways than San Francisco, which is just all work."
Still, much of the city's momentum has been at least stalled by the pandemic and unprecedented market uncertainty. Oakland had become a hot spot for big companies like Square seeking breaks from San Francisco-level office rents and locations closer to employees living in the more affordable East Bay.
But since March, the city has suffered a couple of big losses. In April, Blackstone Group bailed out of what would have been a record-setting $400M deal to buy Uptown Station, which houses Square's Oakland offices. That news closely followed Kaiser Permanente's decision to not build the $900M headquarters it had planned for downtown Oakland through a deal with developers Lane Partners and Strategic Urban Development Alliance.
Even so, the city has also had wins during the pandemic, and its losses aren't necessarily devastating, according to Will Miller, senior vice president of asset management at Ellis Partners, a longtime Oakland office developer. He pointed to Kaiser as nondisruptive to the city's office sector, given the healthcare provider's longtime, still-unchanging presence in Oakland.
“That was not really a net-absorption deal because they were in town already," Miller said. "It was going to be a very orderly transition out of some of their other spaces but not a short-term, dramatic impact in terms of absorption.”
Miller also pointed to the landmark decision by Pacific Gas & Electric to move from San Francisco to Oakland with a lease at TMG Partners' 300 Lakeside Drive.
“That was a project that everyone assumed had about 1M SF of office supply coming back to the market," he said. "Now that that’s absorbed, that’s really kept supply very much under control.”
Miller said Ellis Partners, which recently finished work on the Key at 12th, an 18-story Oakland office tower, views Oakland as much less volatile than S.F. and Silicon Valley.
The East Bay as a whole saw 1.6M SF of office space deliver in 2018 and 2019, or about what it saw between 2010 and 2017 combined, according to Kidder Mathews. But Miller said the 14M SF of Class-A office space in the East Bay pales in comparison to San Francisco and Silicon Valley, which he said have 80M-plus SF and 200M-plus SF, respectively.
SUDA CEO Alan Dones, another panelist, said he is similarly optimistic for Oakland, especially in the opportunity to build more equitably.
A block from the West Oakland BART station, SUDA is partnering with China Harbour Engineering Co. to build a 762-unit mixed-use development. Called Mandela Station, it will offer about 240 affordable units and is the product of a focus on equitable development, which is what West Oakland residents said they wanted, according to Dones.
“We’ve built that into the fabric and DNA from the beginning of our process, starting with a lot of community outreach," he said.
