Coronavirus economy: Office leasing slumps in Bay Area

Office markets in the South Bay, East Bay and Peninsula turned sluggish and posted their weakest leasing performances in years during the second quarter of this year amid coronavirus-linked business shutdowns, according to separate reports from Colliers International.

The leasing activity for office space was so slow in the April-through-June period that space became vacant at a much faster pace than it was rented in Silicon Valley, the Oakland area of the East Bay and San Mateo County, reports from commercial real estate firm Colliers showed.

“Silicon Valley commercial property markets continued to be battered by the COVID-19 public health crisis and the consequent shelter-in-place orders,” according to a report prepared by Lena Tutko, senior research manager in the San Jose office of Colliers International.

Coronavirus-linked business shutdowns that state and local government agencies ordered in California have cast a pall of economic uncertainty over expansion and relocation plans on the part of tenants throughout the Bay Area.

In all three markets, office tenants leased much less space than they vacated. The result is huge amounts of square footage becoming vacant.

Santa Clara County tenants agreed to a combined 815,000 square feet of office leases during the second quarter, down 57 percent from the 1.9 million square feet in leases during the first quarter covering the January-through-March period, Colliers reports show.

East Bay tenants leased a combined 163,700 square feet in the second quarter, a 36 percent drop from the first quarter when leasing activity totaled 254,600 square feet.

Peninsula tenants leased 406,500 square feet in the second quarter, a plunge of 53 percent from the 862,000 square feet in office leases during the first quarter.

“This was the lowest quarterly total recorded since Colliers began tracking these statistics 20 years ago,” Colliers research director Tutko stated in the report for the Oakland-area office market, which includes Oakland, Berkeley, Alameda, Emeryville and Richmond.

Two leases of recent years serve to put Santa Clara County’s 815,000 square feet in perspective. In recent years, Facebook agreed to rent about 1.05 million square feet at a modern tech campus in Sunnyvale that was developed by Jay Paul Co. Google has agreed to lease 729,000 square feet in a single transaction conducted with development firm Peery Arrillaga.

As is the case in all major real estate markets, some tenants are also vacating space at the same time other tenants are leasing space — sometimes involving the same company. That never-ending dynamic brought additional grim tidings to the Bay Area office market.

The tenant exits in the South Bay, East Bay and Peninsula, combined with the feeble leasing activity, meant that far more space became vacant than was filled up in all three markets.

The increase in empty office space during the second quarter totaled 597,000 square feet in Santa Clara County, 374,000 square feet in the Oakland area, and 946,000 square feet in San Mateo County.

“The status of the local market remains fluid and difficult to predict,” Colliers stated in its report about San Mateo County. “Uncertainty over the length of business shutdowns and the challenges companies will face in returning to work will cast a shadow on a reboot of the leasing market.”

One potential bright spot: the resilience of the tech sector in Silicon Valley and the Peninsula.

“A tech industry that seems to be weathering the storm better than many corners of the economy, Colliers stated in its report, “may mitigate the impact on office leasing.” Colliers added, however, that “The next several quarters are certain to be volatile.”

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