Office Tenants Leave Long Commutes And Crime Behind For The Tri-Valley

Go east, young man.

A growing number of companies in the Tri-Valley are setting up shop in office buildings close to their employees’ homes and away from the many challenges facing downtown Oakland and San Francisco.

Even before the pandemic, Bay Area tech workers popularized the work-from-home trend that has left at least a third of San Francisco’s office buildings empty. Meanwhile, in the East Bay, companies are committing to Dublin, Pleasanton, Walnut Creek and Lamorinda where rent is cheaper, commute times are shorter, and crime and homelessness are less prevalent than in Oakland or San Francisco. 

“Along the 680 corridor in Dublin, Pleasanton and downtown Walnut Creek, we have seen some large office requirements lately,” JLL Senior Director of Research Alexander Quinn told Bisnow. “A highly educated workforce is drawing a diverse array of companies to this area.”

Good regional infrastructure and the ability to work close to home have consistently made the region attractive to tenants, said James Paxson, general manager of Hacienda Business Park in Pleasanton. 

The region “punches far above its weight in terms of economic power,” with an annual output of $42B and a population of 361,000. 

Amid shifting macroeconomic conditions, the region’s labor market remains strong, according to Newmark’s Q1 Tri-Valley office report. Recent layoffs in the professional services sector bumped the unemployment rate to 5% in the first quarter, higher than the national average of 3.9%.

Despite layoffs, leasing momentum has picked up in the Tri-Valley.

“In the last two weeks, we've actually signed over 120K SF of leases, which we're very excited about,” Paxson said. “We have another 40K SF to 50K SF of leases that are in process right now.” 

The growth sectors are the same throughout the East Bay and include life sciences, advanced manufacturing, clean tech, automation and robotics, as well as the healthcare sector.

These companies are positioned to take advantage of the Tri-Valley’s available real estate, Quinn said.

“In general, the East Bay remains a tenant-favorable market across the board, and if you are an office user, you're getting more concessions to the extent that landlords can afford it,” Quinn said. 

In some cases, landlords are offering a few months of free rent and tenant allowances of approximately $15 per SF for painting and new carpets, Quinn said.

While many tenants throughout the Bay Area are downsizing, larger properties are available to office users seeking to develop or lease in Dublin.  

Some municipalities are attempting to incentivize startups and other firms to relocate to the East Bay. Dublin is a prime example. In May 2021, the city created its Fallon Road Economic Development Zone to attract office and manufacturing companies along the I-580 corridor and generate tax revenue. 

“The City Council has placed a strategic priority in attracting job-rich tenants in life science, advanced manufacturing, clean/green technology, automation and robotics, as well as startups and incubators” across the 285-acre parcel, Dublin Deputy City Manager Hazel Wetherford told Bisnow in an email.

Plans to develop mixed-use properties with significant housing components will fuel future office leasing activity, particularly in the eastern portion of Dublin, according to Wetherford.

In May, Dallas-based Landsea Homes bought 500 homesites as part of the master-planned Dublin Centre development in east Dublin for $125M. Located at Tassajara Road and Dublin Boulevard, the project will also include about 38K SF of retail and restaurant space, a large community swim center and park space near the Iron Horse Trail. 

“We have seen a desire for tenants to locate in Dublin,” Wetherford said.

Snowflake announced in late 2022 that it was expanding from 40K SF to 153K SF, occupying an entire building at Hines’ Dublin Corporate Center campus at 4160 Dublin Blvd. 

“The Dublin-Pleasanton area has seen some pretty large requirements come up recently,” Quinn said. “We are seeing more growth and expansion in these larger requirements along the 680 corridor.”

Dublin’s Q1 vacancy rate was among the lowest in the East Bay at 15%, Cushman & Wakefield reported.

In Walnut Creek and Lamorinda, smaller spaces are preferable post-pandemic. It’s not uncommon for companies to lease between 2K SF and 4K SF in Contra Costa County, Colliers Executive Vice President Jeffrey Weil said.  

Mount Diablo Boulevard in Lafayette remains a popular submarket for these small-office users, he said.  

“We're seeing a slight trend of companies in Oakland moving out to Lafayette and Orinda because of the crime,” Weil said.

Although he didn’t identify the company, Weil said one building owner in Oakland City Center at Broadway between 12th and 14th streets in downtown Oakland told him there were five or six recent crimes, including a few shootings and at least one carjacking. 

“You can’t even walk into the lobby of this building,” he said. “A security guard has to open the front door to make sure you're OK. We don’t have those safety concerns, at least at this point, in Contra Costa County.” 

In the next six months, Quinn expects companies to sign several renewals in downtown Walnut Creek.

“Downtown Walnut Creek is one location where we’re seeing a lot of activity due to its professional population base and highly educated workforce,” Quinn said. “That’s also because of the available amenities in and around downtown Walnut Creek, which has made it more competitive than other markets.”

An array of restaurants, housing and retail space, including the nearly 1M SF Broadway Plaza open-air shopping center, have made Walnut Creek increasingly popular among tenants, he said. 

But the East Bay isn’t immune to challenges with respect to occupancy and tenant demand, according to Paxson.

“We have had some really strong activity within just the last couple of weeks, but these deals were in the works for a long time,” Paxson said. 

“A large part of the activity that's in the region right now suggests that people are finding value at our location. We strive very hard to make sure that we can accommodate a lot of requests, which allows projects to evolve to meet the new level of flexibility that's required” as the Bay Area’s labor force continues to prefer hybrid work, Paxson said.