Market Observations

Economy

• The East Bay’s unemployment decreased by 50 basis points in the fourth quarter and currently stands at 4.8%.
• This rate is 60 basis points higher than the national average.
• Industrial employment sectors showed mixed trends:
  • Year-over-year growth in trade, transportation services, and manufacturing employment.
  • Decline in construction employment.

Major Transactions

• WPT Capital Advisors, LLC acquired the Pinole Point Distribution Center in Richmond from JLL Income Property Trust:
  • The property includes three buildings totaling 518,000 square feet.
  • Largest occupant, Williams Sonoma, occupies 252,375 square feet at 6000 Giant Road.
  • Subsidiary chocolatier Easton Malloy occupies 41,365 square feet at 6025 Giant Road.
  • The building at 6015 Giant Road was vacant at the time of sale.
• Largest lease transaction of the quarter:
  • NorCal Moving signed a lease for 125,700 square feet at 31129 Wiegman Rd. in Hayward.
• Largest lease renewal:
  • Forward Air Corporation renewed 135,860 square feet of space in Union City.

Leasing Market Fundamentals

• Continued decrease in demand led to:
  • Negative net absorption of 303,825 square feet in Q4 2024.
  • Negative absorption totaling 4.5M square feet for the year.
• Vacancy rates remained stable at 7.5% quarter-over-quarter, with most vacancies in warehouse/distribution buildings:
  • Vacancy rates for all product types stable between Q3 and Q4.
  • Overall availability rate at 9.4%, with 2.3% sublease space.
• Asking rates showed minimal decline:
  • Softer deal rates observed, especially for less functional buildings.

Outlook

• Development pipeline expected to complete delivery by early 2025.
• New construction starts projected to hit their lowest levels in 10 years:
  • Robust planned development pipeline as developers await shifts in market fundamentals.
• Tenant demand expected to increase throughout 2025:
  • Meaningful decline in overall vacancies anticipated by 2026.

Metro Employment Trends Show a Gradual Recovery

As of now, the East Bay Area’s unemployment rate stands at 4.8%, reflecting an increase of 20 basis points compared to the start of 2024. This figure is 60 basis points higher than the national average and remains above pre-pandemic levels.

Office-Using Employment Down

Manufacturing experienced the largest loss in growth for industrial using sectors year-over-over, while construction also experienced negative growth, and trade/transportation/utilities
increased slightly.

Industrial Employment Strong but Not Immune to Softening Conditions

Since the pandemic spike, Trade/Transportation/Utilities and Manufacturing year-over-year growth has come back down close to pre pandemic levels. Trade/transportation/utilities
finished the year with slightly positive year-over-year growth. Manufacturing has had negative year-over-year growth since July of 2023.

Vacancy Remains Up Year Over Year

Vacancy rates in the East Bay remained stable quarter over quarter, while absorption went deeper into the negatives. There was no new construction delivered in the fourth quarter of
2024, although there is approximately 1.3 MSF currently under construction.

Industrial Leasing Activity Increased

In the fourth quarter of 2024, overall leasing activity experienced an increase of almost 450k square feet from the prior quarter. The majority of the leasing activity this quarter
happened in Hayward and Fremont. Leasing in these two submarkets represented about 49% of the total square footage leased in the quarter.

Industrial Sublease Availability Continued to Climb

In the East Bay, sublease space increased by another 175,000 SF, now totaling 4.7 MSF. Of this space 59% is represented by 18 spaces over 100k. Across the East Bay industrial market, the amount of sublease space has doubled since the beginning of 2023.

Industrial Supply Pipeline

There was no new construction starting in the fourth quarter. Approximately 1.3 million square feet of construction activity was recorded in the market, all of which is scheduled to be delivered in the early part of 2025.

Industrial Asking Rent Growth Declines

Industrial average asking rents remained largely flat quarter over quarter while asking rent growth declined by nearly 12% year over year.

Conclusion

The East Bay industrial market faces a challenging yet promising landscape as we move into 2025. While rising vacancy rates and slowed construction activity reflect the lingering effects of economic pressures, the region’s resilience shines through. With anticipated improvements in employment growth and business optimism, coupled with a limited supply of new developments, the market is poised for gradual recovery. Stakeholders should remain vigilant and adaptable, leveraging emerging opportunities to navigate this evolving environment effectively.