Office Vacancy Rates in Walnut Creek, East Bay Suburbs Reach Record High

Deal making slowed considerably and businesses continued to "dump space" throughout downtown Walnut Creek, out in Shadelands office park, and up and down the Interstate 680 and Tri-Valley corridor.

In the second quarter of 2010, some 442,000 square feet of office space stood empty, and vacancy rates in towns from Concord through Walnut Creek and down to Pleasanton hit 20 percent, according to an office trends report from Grubb and Ellis. This 20 percent "well surpasses" the earlier record high of 15.6 percent reached during the dot-com bust. 

The region is still struggling after the economic crash two years ago, analysts said. 

"Downtown's vacancy rate usually hovers around 10 or 12 percent," said Andrew Schmitt,vice president at CB Richard Ellis in Pleasanton.

Vacancy for the I-680 corridor rates rose from around 14 percent in the second quarter of 2008 to 20 percent in the second quarter of 2010. 

However, Schmitt, like other analysts, sees glimmers of hope. "We're trying to see the glass half full rather than half empty," he said. 

Walnut Creek Assistant City Manager Lorie Tinfow added that the increase in lease renewals and expansions mentioned in a market overview from Schmitt's company  "might be a a sign of renewed confidence in the market."

The Grubb & Ellis report said that "an increase in tour activity could bode well for the latter half of 2010."

Unemployment in the East Bay was down to about 11 percent in May, which is below the state's 11.9 percent rate. However, until the region sees sustained job growth, those vacancy rates are not likely to drop, the Grubb and Ellis report said. Business tenants will continue to fight for good deals, and landlords are likely to continue to become more "creative with  their concession packages" to keep tenants happy. 

CB Richard Ellis noted that the vacancy rate for office space in downtown Walnut Creek was around 17 percent; in the Shadelands, the vacancy rate for office space overall was 17 percent, but as high as 32 percent for Class A office space.

Schmitt said that new high in  vacancy rates could be due to leases expiring on businesses that had earlier downsized staff and are now able to occupy smaller spaces that better suit their needs.  

"It's not so much downsizing as rightsizing," Schmitt added. "There are tough times ahead, don't get me wrong."

Tinfow believes that Walnut Creek might be in better shape than other cities. "We remain optimistic about Walnut Creek's future," she said, citing "positive activity" such as the construction underway for Neiman Marcus downtown, VW's purchase of land on North Main Street so that Dirito Brothers can expand its dealership, and plans to build a new grocery store on Geary Road and a new fitness center on North Main Street.

"We have more investment going on than in many other cities!" she said.