Real estate: Silicon Valley, East Bay office markets fare better than San Francisco

SAN JOSE — The Bay Area’s three major office markets have all been weakened by coronavirus-linked ailments, but San Francisco appears to have fared much worse than the markets in the San Jose and Oakland metro areas, commercial real estate surveys show.

Subleases are increasing, vacancy levels are rising, and rents are flat or lower in all three markets — but San Francisco’s office market problems are more pronounced than is the case for the Oakland area or the South Bay, according to recent reports from two commercial real estate firms, Kidder Mathews and Colliers.

Sublease space is increasing at a quick pace in San Francisco as tech companies and other firms chop their operations in that city. However, sublease vacancies have also marched higher in the Oakland area and the San Jose metro region, the two firms report.

During the one-year period that ended in March, the amount of San Francisco’s empty sublease office space rocketed higher by 185%, Kidder Mathews reported.

Over the similar year-long stretch ending in March, sublease vacancies increased by 100% in Oakland-Berkeley-Alameda-Emeryville, according to a Colliers report for the first quarter of 2021. In the South Bay, sublease vacancies rose 54%, Kidder Mathews stated in its report.

Sublease vacancies appear to have chilled the office market in the South Bay, although this dynamic likely extends to both the Oakland metro market and to San Francisco.

“The rise in sublease space and remote work measures are applying downward pressure to overall asking rates,” Kidder Mathews reported, regarding the South Bay office market.

During the one-year period that ended in March, office vacancies have risen by 18.2% in the South Bay and by 16.2% in the Oakland-Berkeley-Alameda-Emeryville areas. But over the same period, office vacancies soared 93.1% in San Francisco, according to a report by Kidder Mathews.

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Downtown San Jose skyline. // Karl Mondon/Bay Area News Group

The typical office vacancy rate is 11.4% in the South Bay, 9% in the Oakland-Berkeley-Alameda-Emeryville area, and 11.2% in San Francisco, Kidder Mathews reported.

Average asking office rent rates are flabby at best in all three markets.

During the one-year period ending in March, office rents rose 3.6% in Oakland-Berkeley-Alameda-Emeryville — but they fell 14.8% in the San Francisco Financial District and by 3.7% in the South Bay, according to Kidder Mathews.

Various reports indicate that a recovery is underway in all three of these major office markets — but the road ahead remains murky.

That uncertainty was sketched out by Kidder Mathews in its report regarding the South Bay market.

“Asking lease rates are expected to remain steady,” Kidder Mathews stated. “Tenants are sticking with short-term leases as companies weigh having workers continue to work from home while planning a return to normalcy” post-COVID.

f97c2 SJM L BAYOFFICE x 01 1 Real estate: Silicon Valley, East Bay office markets fare better than San Francisco
San Francisco skyline and the Bay Bridge, view from Salesforce Tower, November 2019. // Karl Mondon / Bay Area News Group


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What’s it like to live in the hottest real estate neighborhood in the Bay Area

“It was like something out of a movie, you know. We were dressed in the all-white suits with the full face masks,” he said.

Ramos, 29, has spent the last 10 years on 25th Avenue in a duplex owned by his family. Over that decade, the real-estate firm Zillow estimates that Oakland’s median home value ballooned from under $380,000 in 2011 to over $890,000 — a trend that the coronavirus pandemic accelerated. Now his neighborhood is the hottest real estate market in the nine-county Bay Area region, the epicenter of a pandemic-era housing price boom in the East Bay.

Since the start of the pandemic, Reservoir Hill’s median home value has shot up by nearly 25%, from over $643,000 to about $800,000, per Zillow’s estimates. The neighborhood, which sits just south of the MacArthur Freeway and west of Fruitvale Avenue, is one of 14 in Oakland where estimated home prices increased by 15% or more in a single year. Most of these neighborhoods are in the eastern flatlands, from Reservoir Hill to Durant Manor.

“The data definitely shows a lot of these Oakland neighborhoods (are) among the fastest appreciating,” Jeff Tucker, a senior economist at Zillow, told The Chronicle.

But the trend extends far beyond Oakland. The housing market exploded nationwide in 2020: Home prices rose by 12%, the largest annual gain in 15 years, according to the SP Case Schiller Price Index. Tucker said the pandemic accelerated the home-buying process for many Americans by highlighting the importance of personal space, while de-emphasizing proximity to workplaces and city centers.

According to Tucker, Zillow generates a median home value estimate for a given neighborhood based on several factors, including the neighborhood’s location and its recent sales. Reservoir Hill had only five sales from March 2020 to March 2021, but those homes sold for much higher than Zillow would have expected — which is partly why its home values soared so much in the past year.

As for location, Tucker said many East Oakland neighborhoods appear to be in a “sweet spot” for young, upwardly mobile families.

“These neighborhoods in Oakland provide single-family homes at an affordable price point with some of the urban lifestyle amenities that people still like,” he said.

The surge in home values may benefit East Oakland homeowners looking to sell, but it’s also creating what Policy Link is calling a “displacement crisis” for struggling owners and renters. Even in early 2015, when Oakland’s median home value was a mere $520,000, most of the city’s residents could not afford to purchase a median-priced home in their own neighborhoods, according to Policy Link, a national research institute based in Oakland.

And even when they can afford it, families of color in East Oakland might not be able to get their offers accepted in a red-hot housing market like this one, according to Tucker.

“There’s a major downside here,” he said. “When there’s this super-elevated competition for homes, and people shopping from all over the Bay Area, it’s just harder to keep up if you’re not coming to the table with high income and sterling credit, where you can get preapproved for a mortgage and move quickly on closing. Or … where people are making cash offers. All this effectively locks out people who, in many cases, could afford homes.”

Soaring home prices have contributed to an exodus of people of color: Black people made up 44% of Oakland’s population in 1990, and now they make up less than 25%. In the census tract encompassing Reservoir Hill, the percentage of Black residents declined from 38% to 21% of the population from 2000 to 2019, while non-Hispanic white residents increased from 22% to 31%. (Hispanic populations rose and Asian populations declined, though both at more modest rates.)

Many Black and Latino ex-Bay Area residents have migrated to more affordable cities inland like Sacramento, according to a 2018 analysis by the UC Berkeley Terner Center. Ramos said many of his friends have moved to Stockton.

Chris Schildt, a senior policy expert at Policy Link, pointed out that the 2008 mortgage crisis hit East Oakland homeowners especially hard. Predatory lenders steered many Black and Latino homeowners into bad loans, forcing them into foreclosure when the recession hit.

“During the foreclosure crisis, so many private companies bought up homes in East Oakland, so they’re the ones profiting from this increase in home values right now,” she said.

These home value increases will likely make it harder for East Oaklanders renting from property management companies to stick around.

“Generally speaking, if the neighborhood home value rises, that’s a signal it’s becoming more desirable to people with higher incomes,” Schildt said. “A signal that rents will rise as well.”

Reservoir Hill feels a world away from these concerns — at least at first glance, and depending on whom you ask. The neighborhood is racially integrated, and is home to working people in education, engineering and the arts. Many residents have owned their homes for decades.

Lauren Beilin is one of the exceptions: She moved into her home on Sheffield Avenue soon before the pandemic hit. She was attracted to the two-bedroom house for two main reasons: It was what she could afford in Oakland, and it lay within the school map boundaries for Glenview Elementary, a public school she thought would be a good fit for her two young children. (25th Avenue lies just outside those boundaries.)

When told she lived in the hottest housing market in the Bay Area, Beilin was surprised.

“I mean, I know we’re in the Bay Area, but we’re below 580,” she said. Even though her home has likely appreciated since she bought it, Beilin said she wouldn’t consider selling anytime soon. “It’s the best neighborhood I’ve ever lived in,” she said.

Aside from Beilin and a few other young families, Sheffield Avenue has had a low turnover rate in the past few years — partly because the community is so tight-knit. But a few homes near Ramos’ street did have impressive sales in 2020, according to Zillow, which could have driven up home values for the rest of the neighborhood.

Ramos said those higher prices have brought wealthier, whiter neighbors to his street, and to other parts of the city. “Lots of people are coming from San Francisco,” he said. “Especially where I’m at, people have moved away. Mostly people of color.” He has mixed feelings about gentrification in Oakland overall: “Maybe the crime’s gone down,” he said. “But then it’s also sad, you know, seeing people that lived here for lots of years being pushed out of their homes. … When it was 2010, you could (rent) a place in Lake Merritt for $800 and now it’s like, $2,000 and up.”

Ramos still appreciates his street’s community feel. “I love my neighbors, and we look out for each other, exchange phone numbers,” he said. He’s close with his aunt and her daughters, who occupy the other half of his duplex. Ramos spent a recent evening walking down 25th Avenue knocking on doors, asking neighbors to sign a petition to add speed bumps to the street.

Still, that sense of closeness with the broader community has faded a bit. “When I first moved in over here, we used to have block parties, and we were involved with the neighborhood crime watch,” he said. But over time, he added, “people who were the leaders moved out here. They got older, passed away.”

Susie Neilson is a San Francisco Chronicle staff writer. Email: Twitter: @susieneilson

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The Bay Area’s housing production plummeted in 2020. Here’s a look at the trend by county

The nine-county Bay Area region experienced an even sharper decrease in home-building last year, with a 26% downturn in total residential permits issued. The region issued 28% fewer multi-family permits, and 24% fewer single-family ones.

The Bay Area’s slowdown on housing production — particularly of multi-family units, which can house more people in denser urban areas — has led to a red-hot market, with fierce competition over the small pool of available homes. Prices have skyrocketed in Napa County and Alameda counties in particular: The two counties saw their median home values increase by more than 10% in just the past year, according to data from the real estate firm Zillow.

Marin County had the greatest decrease in residential permits overall, with 54% fewer permits issued in 2020 compared to 2019. Most of that decrease came from multi-family housing — the county issued just three multi-family permits in 2020, compared to 86 in 2019. Four other counties, Alameda, San Mateo, Sonoma and San Francisco, saw housing permits decrease by more than 25%.

The only Bay Area county that saw increased housing production last year was Solano. The county, which had looser restrictions on construction last April than most other Bay Area counties, issued 41% more housing permits in 2020 than it did in 2019. Solano particularly increased its multi-family housing production: The county issued 716 multi-family permits in 2020, over ten times more than the 56 it issued in 2019.

California hasn’t built enough homes to keep up with its population since the 1970s, but the state has suffered from an especially steep decrease in production during the Great Recession. Statewide residential permits fell by 83% over four years, going from 209,000 permits in 2005 to just 36,000 in 2009.

Starting in 2010, housing production climbed steadily back upward until 2018, when permits peaked at 118,000. Then they fell back down to 111,000 in 2019, a 6% decrease. And then they fell again last year, down to 100,600 — the lowest number since 2015 and far from Gov. Gavin Newsom’s stated goal of about 500,000 new homes a year.

Matt Lewis, director of communications at California Yimby, a pro-housing advocacy organization, said that the pandemic contributed to declining housing production last year in several ways. For one, ongoing supply shortages have driven up the cost of lumber, along with other building materials, like iron and steel.

Additionally, some parts of the state temporarily halted or impeded construction last year, he said — including the Bay Area, where most counties shut down a majority of construction sites last April.

“A month of a job site sitting dormant is a loss of money depending on the size of the job site, (and) has the impact of scaring off some of the capital that might come from future projects,” Lewis said.

Government building shutdowns also caused delays to many projects by slowing down the collaborative process between developers and city officials, as the Mercury News previously reported.

Susie Neilson is a San Francisco Chronicle staff writer. Email: Twitter: @susieneilson


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Opinion: Utah housing is on the highway to San Francisco

For Utah housing costs, the highway to San Francisco is moving at full speed.

It’s the traffic going the other direction we ought to worry about.

If you doubt that the Wasatch Front is headed toward Bay Area real estate prices, consider this:

Zillow, the real estate marketing company, reports that the typical home in Park City now sells for $1,027,216. In San Francisco, it’s $1,419,714.

The difference is that Park City’s home values shot up by 11.2% over the past year, while San Francisco’s fell by 3.2%.

If COVID-19 illuminated anything, it was the dissatisfaction of Bay Area residents. As the pandemic began, many people were told to work from home indefinitely, so they decided to move somewhere that didn’t cost as much.

The East Bay Times reports that about 114,600 people left the Bay Area during the fourth quarter of 2020 alone.

In Utah, the situation is the opposite, for now. People, a lot of them, are coming here. But that won’t last long if no one can afford to stay, or if they keep getting outbid when trying to buy a house.

David Robison, president of the Utah Association of Realtors, told me this week he doesn’t think the Wasatch Front will reach Bay Area levels for at least 40 years, but he is worried. As Utah’s own children grow up, and as people come here from other states, the demand keeps growing. By some estimates, the state has a deficit of about 50,000 places to live.

The only solution, Robison said, is to build higher density housing — the very thing that gets suburban voters so riled up they throw people out of office.

“If done smartly, it can be a powerful way to overcome our inventory needs,” he said, pointing to the Daybreak development in South Jordan as an example. “But it’s hard when people only want one-third acre lots.”

Robison said cities often require that houses built on one-third acre lots contain a minimum number of square feet. That, in turn, means those subdivisions contain expensive homes, which, in turn, pushes prices higher. “That’s not going to solve our issue.”

As if to emphasize how hot the market is here, this week crowned Utah the king of its national housing heat index.

“Utah boasts the nation’s strongest pace of job growth, along with rock-bottom unemployment, ultra-low mortgage rates, few mortgage delinquencies and low state and local taxes,” the publication said. “Residential real estate has boomed during the coronavirus recession, and Utah has emerged as a particularly desirable market.”

At the same time, Re/Max named the Salt Lake metro area as the place with the fastest selling homes, with an average of only 16 days on the market. That compares with 36 days a year ago.

All this is, of course, good news. It’s a sign the state is poised to rebound strongly from the pandemic. But unless all that growth can correspond with places to live, the state may find it has limits on prosperity, even as the cost of living skyrockets.

Park City is, of course, an outlier. In Salt Lake County, Zillow reports the typical home costs $447,003. In Utah County, it’s $419,714. But both represent increases of more than 15% from a year ago.

COVID-19 is responsible for some of this. Fewer homes are on the market than before the pandemic struck, and much of the nation faces a similar rise in prices. Re/Max reports inventory is down 45.2% nationwide over this time a year ago. As the pandemic ends, some of the crunch will level out.

In addition, state lawmakers recently made it easier for people to rent parts of their homes — something that may help ease the housing shortage over time. And Robison pointed to signs that pandemic-induced inflation may be subsiding, as costs seem to have stabilized a bit over the last month.

But then, he said, “We’ve had a trend for a long time of people wanting to move to Utah. We already had an inventory issue a year ago, before COVID.” The housing crunch here isn’t all pandemic-related.

It’s not too late for Utah to exit the highway to San Francisco, but it’s going to take a lot of construction, a lot of innovative thinking and a collective resolve to grow up, instead of out.

Robison is optimistic cities will understand that housing restrictions keep children and elderly relatives from resettling to neighborhoods nearby, even as they push prices higher.

“I’m optimistic we can solve the issue,” he said. “We just need a lot more housing right now.”

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These Tahoe home listings show the state of its red-hot real estate market

In the past, Tahoe has been a more affordable place to buy a home, compared with the Bay Area. But that might not be so true anymore, Realtors say. Pandemic migration has driven up the market’s prices astronomically, while the number of people selling has gone down, reducing the supply of listings.

Even before the pandemic, homeownership would have been out of reach for much of the area’s population, based on household median income, says Compass Realtor Mark Salmon. “Now this wave has only worsened that.”

In 2019, $500,000 was on the lower end of the market, but still possible to find some options for buyers, Salmon said. Now, he tells his clients he has virtually nothing to show them. And if he does, any listing would get bid through the roof, or be a fixer-upper.

Below the $1 million price point, Salmon says inventory is extremely limited. And with the influx of transplants coming in ready to buy — who come with Bay Area wages — any listing is guaranteed to push over listing price and sell within days.

“At $800,000 you’re the most frustrated buyer,” he said. “You’re competing against a lot of people.”

Salmon says 90% of the buyers he’s seeing are from the Bay Area, and mostly fall within the 25-to-35 age range.

Defining luxury and affordability in Tahoe isn’t always straightforward. Like many Bay Area regions, there are micro-neighborhoods that complicate the picture and can skew numbers upward — for instance, the homes surrounding the Lake Tahoe waterfront come at a huge premium.

But overall, Realtors say, prices in the $1.5 million range are getting into luxury territory, and $3 million is around where uber-luxury begins. In the Bay Area, on the other hand, luxury typically begins at the $3 million price point.

So what do luxury and uber-luxury look like in South Lake Tahoe? We compared two properties in South Lake Tahoe to see what the market looks like at both points.

 These Tahoe home listings show the state of its red hot real estate market

629 Clement Street, South Lake Tahoe

Ascent Property Group

A five-bedroom cabin just steps away from the mountains

629 Clement St., South Lake Tahoe

List price: $1,249,500

Size: 3,051 square feet

Price per square foot: $410

Amenities: Three-car garage, jetted tub, backyard, two decks, skylights, hot tub

 These Tahoe home listings show the state of its red hot real estate market

629 Clement Street, South Lake Tahoe

Ascent Property Group

 These Tahoe home listings show the state of its red hot real estate market

629 Clement Street, South Lake Tahoe

Ascent Property Group

This five-bedroom, three-bathroom mountain home is just steps from the trailhead that leads to Fallen Leaf Lake, and is a 15-minute bike ride to Lake Tahoe. It’s also minutes away from all that living in South Lake Tahoe has to offer: mountain biking, snowshoeing, cross country skiing, and more, said Ascent Property Group listing agent Rene Brejc.

 These Tahoe home listings show the state of its red hot real estate market

629 Clement Street, South Lake Tahoe

Ascent Property Group

The property was built in 2006 — which makes it a bit dated compared to a lot of the region’s brand new construction —but it’s still getting a bit of interest, even though the market is in its typical off season. Since it’s been on the market, Brejc says there has been “competition at every level.”

She says in the more than two decades she’s been in the real estate business, multiple offers on homes were relatively rare. “Now, it’s more normal.”

 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe


A 1.2-acre mountain manor with indoor pool and movie theater

3773 Regina Road, South Lake Tahoe

List price: $3,498,000

Size: 6,604 square feet

Price per square foot: $530

Amenities: Home theater, indoor pool, decks with covered built-in BBQ/bar and fire pits, 1.2 acre parcel

 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe 


 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe


At 6,604 square feet, this 10-bedroom, 11-bathroom home is a beast of a mountain lodge located within walking distance of Heavenly’s California lodge.

The lavish residence has a number of large decks with barbecue and bar areas, fire pits, and an entire floor dedicated to entertainment — a home theater room that can seat 18, a gaming area, a 400-square-foot indoor swimming pool, a steam room and a sauna.

 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe


 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe


But the palatial qualities of this residence probably won’t be for everyone. The home was originally designed and utilized as a vacation rental, but such short-term rentals are being banned from Lake Tahoe in 2021.

The home’s location — right on the main drag that gets you to Heavenly ski lodge — makes it convenient as a long-term vacation rental home. But that convenience means no stunning views of the lake, potentially a big downside at such a high price point.

Salmon, who is the listing agent for the property, said he’s done a handful of showings — including one company that was interested in the home. But it’s the kind of property that will need to find its match.

Salmon says a home like this could be perfect for a large family, or a joint venture — two to three families that would want to get together and purchase a large home together.

 These Tahoe home listings show the state of its red hot real estate market

3773 Regina Rd, South Lake Tahoe


“It’s just like a fun park built within a home,” he said.

And as the months stretch on, Salmon continues to see more and more Bay Area residents coming up to Tahoe to live the outdoorsy dream. “It’s that FOMO (fear of missing out),” he said. “Everybody wanted to get a piece of it.”

Annie Vainshtein is a San Francisco Chronicle staff writer. Email: Twitter: @annievain

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