Developers gear up for new office projects across East Bay

East Bay Business Times - July 2, 2007
http://eastbay.bizjournals.com/eastbay/stories/2007/07/02/focus1.html





Developers gear up for new office projects across East Bay
East Bay Business Times - June 29, 2007by Jessica Saunders
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The curved blue-glass facade of 2100 Franklin, downtown Oakland's first new office building since 2002, might also be seen as the wave of the future in East Bay office development.

With an eye on skyrocketing San Francisco office rents, a strong economy and declining Class A vacancy, developers holding East Bay land are starting to dust off their blueprints and prepare permit applications. And some, like 2100 Franklin developer Brandywine Realty Trust, are already ahead of the forming wave.

Nine-story 2100 Franklin, to be completed in October, will join existing 20-story 2101 Webster St. to form the 675,000-square-foot Center Twenty One complex. Dan Cushing, the REIT's managing director for Northern California, has several tenant proposals in hand for the new building. Companies that have toured the space include financial institutions from San Francisco, and technology, financial management and health care companies.

Cushing is intrigued by the tech and financial interest in his project. "You think of San Francisco as the high-end financial district. To see them coming this direction is interesting."

But it is not surprising. San Francisco rents in the first quarter were 21 percent higher than in the same period a year ago, and a recent flurry of downtown building sales is pushing the envelope further - up to $60 to $70 a square foot annually, with some premium-view spaces now at $100 a square foot per year. Morgan Stanley's February $2.65 billion acquisition of the 10-building, 3.9-million-square-foot former Equity Office Properties Trust San Francisco portfolio from Blackstone Group translated into $675 a square foot.

That's an estimated $75 per square foot above replacement cost, or new construction. Above-market sales also lead to higher tax assessments that get passed on to tenants.

When rents go up substantially, tenants get mobile and look for cheaper alternatives, said Bill Nork, senior vice president and manager for Cornish & Carey Commercial/ONCOR International's Emeryville office. He noted that leases signed during the tenants' market that followed the dot-com implosion are now expiring, another market driver.

"We have a real interesting 12 to 18 months ahead," Nork said.

East Bay rents are cheaper - an average of $26 per square foot a year - but certain submarkets are homing in on the key $50-per-square-foot annual figure ($4 to $5 a month) most market observers say would justify new construction. The upper end of the Oakland City Center submarket rental range in the first quarter was $3 per square foot a month, or $36 annually, according to NAI BT Commercial market research. Premiere buildings rent higher, such as 1333 N. California St. in downtown Walnut Creek, where space is $3.40 per square foot per month.

Those figures are steadily rising. Average asking rents are up 11 percent to 12 percent in downtown Oakland and 22 percent in Emeryville in the past year, which NAI BT attributes to landlord pressure, including newcomers Brandywine, which merged with Prentiss Properties in 2005, and Hines, which bought the Watergate Towers in Emeryville in December.

Meanwhile, vacancy rates in the inner East Bay - Emeryville, Berkeley and Oakland's Jack London, City Center and Lake Merritt districts - were at 10.3 percent with a building base of 20.5 million square feet, according to NAI BT. Nork put the downtown Oakland vacancy rate at 7 percent. Nothing new has been built in downtown Oakland since Shorenstein Realty Services finished the 21-story, 487,224-square-foot 555 City Center, at 555 12th St., in 2002.

Enter Brandywine, which acquired the 2100 Franklin project in the Prentiss merger and, with vacancy rates going steadily down, saw strong market support for going forward. With its Oakland portfolio 96 percent occupied, the 215,000 square feet of new space would accommodate both new tenants and current tenants who need to grow.

"We wanted to be the first to deliver and catch the window where there are no other competitors," said Cushing, who puts the current downtown Oakland vacancy rate at 9 percent, including sublease space.

The project included a makeover for the older 2101 Webster St. location, joining it to 2100 Franklin with a nine-story atrium lobby. It will be a new main entrance that is 1½ blocks closer to BART for Webster tenants. Floor sizes range from 24,000 to 49,000 square feet. Outside, the architecture is enhanced by 2100's curved glass south wall, which extends from the street corner to the side of 2101 Webster. Each piece of glass is in a slightly different plane from its neighbors, so no two reflections are quite the same, Stephen T. Wright, principal with Wright Heerema Architects of Chicago, said in an e-mail.

Although no tenant contracts for 2100 have been announced yet, Brandywine has enough confidence in the Oakland market to go forward with plans for 2 Kaiser Plaza, located next to the 28-story Ordway building it also owns. Cushing said a permit application will be submitted to the city around mid-July for an office building that may eventually include a residential component. Brandywine also owns a developable parking lot on Webster Street, adjacent to World Savings Center at 1901 Harrison St.

Another Oakland landowner whose plans have drawn considerable interest is Shorenstein, which has two developable parcels near the 3.5-million-square-foot, five-building City Center complex. The company is working on plans for a 500,000-square-foot office building - on the block bordered by 11th Street, Martin Luther King Jr. Way, 12th Street and Jefferson Street - with Korth Sunseri Hagey Architects, who designed 555 City Center, said John Dolby, vice president of leasing for Oakland City Center. The site is currently a parking lot. Shorenstein expects to get city approval for the project sometime in the fall, Dolby added.

Shorenstein's other parcel, the block between 555 City Center and 1111 Broadway, which contains an underground parking structure with a park on its roof, has long been entitled for a 10-story, 300,000-square-foot office building, Dolby said. But for now, the focus is on designing a high-rise for the parcel labeled "T-12" on the City Center site map. "It's very early on," he said. "We're not in a horse race to get this project done. We want to take the time to design a great complex."

Elsewhere in Oakland, SKS Investments is planning a 210,000-square-foot office building at 1100 Broadway, including adaptive reuse of the former Key Systems building facade, to begin construction in late 2008, according to the company's Web site. SKS representatives did not return a phone call seeking comment, and city officials had no application on file earlier this month. Another long-discussed project is a 63-story tower with 1.1 million square feet of office space, plus retail and a hotel, at 1930 Broadway, but developer Peter Wang did not return a phone call seeking comment. City officials were waiting for a planning permit application expected in the fall.

Outside of Oakland, the office building wave is also gathering strength. In Emeryville, Wareham Development is finishing its EmeryStation East, which offers 245,000 square feet of Class A research and development space and has attracted interest from tenants including Novartis in a submarket that at 5 percent vacancy is effectively full.

Over in the Interstate 680 corridor, CarrAmerica and Sunset Development are among the companies planning new office developments. Sunset expects to get approval from the city of San Ramon this fall to begin construction in 2008 on City Center, a 39-acre mixed-use development within Bishop Ranch office park that will include 680,000 square feet of office space spread over three buildings, the company's chief executive officer, Alex Mehran, said.

CarrAmerica's recently proposed campus expansion is among several ongoing and proposed developments within Hacienda Business Park in Pleasanton. Other projects include Roche Molecular Systems' new 138,000-square-foot building, the 24,600-square-foot multitenant office building nearing completion at4733 Chabot Drive and a 5,000-square-foot expansion of ValleyCare Medical Center on West Las Positas Boulevard. There's still room for expansion in Hacienda, including at Oracle's campus and on the land between Roche and the existing Dublin/Pleasanton BART station, Hacienda Business Park general manager James Paxson said.

Other projects that may simply be awaiting a tenant to get under way are Sierra Pacific Properties' Metroplex Center on Willow Pass Road in Concord, which is already entitled for a second office tower, and RREEF's undeveloped parcel next to One Concord Center at 2300 Clayton Road in Concord.

A 12-story office building with 290,000 square feet of space and ground-floor conference center are planned for Contra Costa Centre near the Pleasant Hill BART station. Millennium Partners and AvalonBay Communities Inc. expect to get started after the new nine-level BART parking garage is completed in 2008.

High-rises are not the only way developers are attempting to address office demand throughout the East Bay. Reynolds & Brown is working to complete the first Class A office park in Antioch, 121,000-square-foot Bluerock Center on Lone Tree Way, which it will own and manage. Its two-story buildings are targeted at small medical and professional users.

Another approach is creating campuses of for-sale small office buildings on their own lots. Earlier this year ExTerra Realty Partners LLC broke ground on the first phase of Montevina, in the Tri-Valley Technology Park in Livermore, and Opus West Corp. began its Fremont Tech Center in Bayside Business Park in Fremont.

In Solano County, the State Compensation Insurance Fund is building a 434,375-square-foot office campus at Vaca Valley Business Park in Vacaville, and new construction is under way at Green Valley Corporate Center in Fairfield. Developers are also preparing to build the next phase of the Fairfield Corporate Commons, which is located across Suisun Valley Road from Green Valley and which will be 800,000 square feet when complete.

jsaunders@bizjournals.com | 925-598-1427



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