Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
Thanks to large employment increases in logistics, goods producing, and technical industries, the East Bay’s unemployment rate is the lowest it has been in decades, suggesting that the current expansion of the region’s economy is far from over. The local commercial real estate market stands out as it remains on a strong growth path and rents are increasing. Still, while the East Bay economy is continuing on its upward trajectory, the rate of growth in the region has slowed marginally compared to one year ago.
Healthy Expansion Continues
From August 2017 to August 2018, the unemployment rate in the East Bay decreased 0.9 percentage points from 3.8% to 2.9%, with the labor market tightening further. Over the same period, total nonfarm payroll increased by 1.8% – an addition of 21,300 jobs, as the region reached a total of 1.2 million jobs. Despite these solid gains, neighboring San Francisco and the South Bay outpaced the area, growing at rates of 2.1% and 3.8%, respectively.
The slower pace of hiring in the East Bay is not attributed to a weakening economy, but to a very tight labor market that has seen negligible increases for much of this year, similar to the California labor market as a whole.
Between August 2017 and August 2018, the Transportation and Warehousing sector experienced the largest growth in terms of percentage change (+11.1%), adding 3,800 jobs. The Professional, Scientific & Technical Services sector experienced the largest absolute expansion, adding 3,900 jobs. The largest decrease in employment occurred in the Wholesale Trade sector with the loss of 1,000 jobs. Also, Leisure and Hospitality grew by only 0.4%, or 400 jobs.
Beacon Economics forecasts the East Bay’s unemployment rate to end the year at 3.1% with little change in 2019. For the rest of 2018, expansion in total nonfarm employment will be just shy of 2%, with job growth slowing next year as a result of labor force constraints.
Steady Growth for Commercial Real Estate
According to commercial real estate data source, REIS, the cost of rent increased across all of the major commercial property types in the East Bay from the second quarter of 2017 to the second quarter of 2018.
The average yearly cost of rent for Office space in the East Bay increased 3.7% to $33.20 per square foot, even as the vacancy rate increased 0.4 percentage points to 14.5%. The average cost of rent for Retail space rose 2.5% to $31.16 per square foot, with the Retail vacancy rate increasing 0.8 percentage points to 7.4%. The average cost of rent for Warehouse/Distribution properties increased 5.7% to $6.54 per square foot, as the vacancy rate decreased by 0.2 percentage points to 6.9%.
The cost of rent for all commercial market segments in the East Bay remains below that of San Francisco and the South Bay.
Overall, the value of all commercial permits issued in the second quarter of 2018 came to $151 million, slipping 19.6% compared to one year earlier. Permits issued for Office space totaled $72.7 million, up 12.6% year-over-year. However, for retail space, permits over the same period totaled $5.1 million, a 91.4% year-over-year decrease. Permits issued for Warehouse/Distribution properties totaled $77 million, up 95.9% year-over-year.
** The East Bay refers to the Oakland-Fremont-Hayward Metropolitan District, covering Alameda and Contra Costa Counties.