The final quarter of 2023 ended on a bit of slow note for industrial leasing and sales in the greater San Francisco East Bay.

The Oakland and I-880 Submarket has approximately four million square feet of industrial space under construction. The year finished with two million square feet of negative net absorption signaling a transition from the all-time low vacancy rates of prior years. Vacancy rates have begun creeping up, ending the year at 5.8%. Pricing has stabilized after three full years of rental rate increases.

The inner East Bay markets consisting of Pleasanton, Livermore and Dublin followed the trends of the I-880 with negative net absorption and ending the year at a 5.9% vacancy rate compared to 5.1% 12-months prior. Landlord’s are less resistant to concessions and tenant’s have more options in the market, allowing for more negotiations than we have seen in previous quarters. With this, we expect rents to decelerate.

The Fremont submarket faired better than its competing submarkets ending the year at 5.0% vacancy rate, just shy of a 1% increase from the previous year. Logistics buildings specifically, continue to be in high demand with historically low vacancy rates. Fremont was the only market to report a slight increase in rental rates.

The most notable statistic of 2023 was the size of leases. The largest deal in 2023 consisted of 220,000 square feet in Hayward, compared to more than half a dozen deals of that size or larger, in 2022. Fremont and Hayward outpaced all other submarkets signing significant leases with Tesla, Torani, RK Logistics, Zoox, and Quanta Computers USA.

Industrial sales have slowed with the spike in interest rates. Owner occupied transactions fueled much of the momentum while investors pressed pause to see what will come of interest rates. Sale pricing has yet to reflect the changing interest rate environment and lessening tenant demand. Sellers are still looking to fetch top dollar, leaving a gap between buyer and sellers. Despite this, those buildings that did transact still achieved historically strong prices. As rates begin to decrease and investors get antsy due to being sidelined through much of 2023, we expect total transactional volume to increase in 2024.