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New construction deliveries opening opportunities, but market is still tight

  • The two million square feet of new construction deliveries since Q1 2017 are finally creating occupancy opportunities within the market. Although the East Bay industrial vacancy doubled from the previous quarter to 3.3 percent, the market conditions are still tight. While most corporate users pursuing space in the East Bay are prepared to pay the high rent costs in exchange for proximity to their labor and customers, smaller companies with more conservative budgets and less speed-to-market needs are beginning to consider relocating to nearby markets. Markets in the Central Valley are gaining traction, providing companies with lower-cost product while remaining within close proximity to a strong labor force.

  • The addition of new industrial product has helped ease the tightly compressed market, but vacancy is still very low. Demand will stay high in the East Bay for last-mile delivery and industrial space. The tenants will see an increase in pre-leased new construction, and rental rates will likely increase by 7.5 percent by end-of-year. Conversely, labor availability and more manageable drive times are starting to shift tenants east to markets like Livermore and the Central Valley, where larger facilities can be found at less expensive rents, while still satisfying their just-in-time needs.

Source: JLL Research

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