While Berkeley office vacancy rates have been increasing over the past two years, they still remain half those of San Francisco, where real estate vendors estimate year-end office vacancy rates at more than 20 percent.
But the city’s downtown current vacancy rate of 12.25 percent is more that five times higher than 2000, when BT Commercial Real Estate estimated office vacancies at 2.21 percent. West Berkeley has fared slightly better, with vacancies rising from 3.62 percent four years ago to 11.46 percent today.
But compared to San Francisco and Santa Clara County, Berkeley is sitting pretty, and the city’s vacancies are the lowest of all regions of Alameda County, save for Jack London Square.
“We’re going good,” said John Gordon of Gordon Commercial Real Estate Services in Berkeley. “This is generally a healthy community. It’s a place where people want to be.”
“In the long run, because we’re so diversified, we’ll be in much better shape than a lot of other areas,” said Ted Burton, the city’s Economic Development Program coordinator.
“The dot.com bust and declines in the high tech sector have had some impact, especially in West Berkeley, but we’re a lot better off than Silicon Valley,” Burton said.
The recent downsizing of the UC Berkeley Extension program has made 12,000 square feet available downtown, Gordon said, “and there’s been some downsizing and closings in the high tech field.”
By contrast, downtown San Francisco’s office vacancy rate was the second highest in the country in 2003, trailing only suburban Detroit, according to the Federal Reserve Bank.
And of the 110 million square feet of vacant office space in the greater Bay Area, 70 million are in Santa Clara County, emptied by the dot.com collapse, said Jeffrey Wieland of Walnut Creek, senior vice president of Colliers International, a global commercial real estate brokerage.
“The East Bay’s relatively well off because of the diversity of businesses here,” said Erin M. Proto, East Bay Research Services Manager for real estate giant Grubb & Ellis Company.
Higher vacancies mean less rental income for owners, not only from more empty offices but from the dropping rental rates that accompany high vacancies.
The average monthly rent per square foot of a downtown office has dropped from $3.29 in 2000 to $2.05 today—in West Berkeley from $2.81 to $1.82.
High vacancy rates translate into dramatically lower rates in San Francisco, Wieland said, where annual rates for the choicest San Francisco that were running $110 per square foot at the peak of the boom have dropped to $32, with rates in the South of Market area dropping to $18 to $20 a year.
Nationally, “office markets are unquestionably in the grip of a downward cycle,” reports the Society of Industrial Office Realtors in the 2004 U.S. Office Market Review and Outlook.
And while federal economic figures show a recovering economy, with corporate profits in double digits for the last two years, there has been no corresponding decrease in unemployment.
One culprit implicated in the anomalous “jobless recovery” is the increasing reliance on “offshored” jobs—the replacement of American workers by cheaper foreign workers in manufacturing, technology and, increasingly, the so-called service industries.
Accounting jobs are moving to Asia at record rates, and medical transcription and legal research are also headed offshore, primarily to India. The New York Times reported in October that offshoring has already produced higher office vacancy rates in New York City, where Wall Street brokerages and investment bankers have been sending financial analyst jobs overseas.
“Offshoring is more of a problem in Concord and San Francisco, which have more back office rentals,” Gordon said.
“The Berkeley office market is relatively healthy because the city hasn’t built much office space in the last five to ten years, and because the university is a big magnet for tech companies,” said Wieland. “You’re doing a lot better than Emeryville—‘Emptyville’—which has been running around 30 percent,” he said.
Besides the vacancies created by offshoring, companies are generating increasing amounts of “shadow space” emptied by the replacement of human workers by integrated software platforms that fulfill multiple functions that once required human workers.
Even without offshoring jobs, Wieland said many Bay Area companies are relocating to Sunbelt states like Texas, where salaries, property taxes, and workers comp insurance costs are all lower. “In the long run, Berkeley’s in an enviable position. Because of the university, people are always going to need offices,” he said.
Berkeley’s large numbers of nonprofit organizations also contribute to the relative health of the local office market, said Gordon, who’s been dealing in local real estate for the last 24 years.