Oakland Real Estate News
Institutional investors are crowding into the Oakland market, and they are active landlords and seeking return on investment. Their construction and renovation activity will prepare them for the influx of tenants from San Francisco.
OAKLAND MARKET FACTS
FACT: Office market vacancy is 5.4% as of the end of 2015.
FACT: Multifamily effective rents grew 19.3% in 2015.
Oakland's market fundamentals grew very tight, particularly in the past 24 months, as San Francisco's tenants and residents were pushed out of the market due to pricing. This is a familiar trend in every past bull cycle, and we now see Oakland establishing itself as a stronger, independent submarket. Time will tell whether it will be a third market pillar in the Bay Area behind San Jose and San Francisco.
Source: Axiometrics and CoStar
Cap Rates vs. Treasury Rates and Market Peaks
With the recent volatility in the markets, it's worth discussing our current standing in this market cycle. I won't prognosticate on the course of macroeconomic trends or peak pricing. Instead, here is a thought from a recent presentation by HFF, which analytically views cap rates from another perspective. Cap rates today have compressed to the lows found during the peak of the 2007 bull market, a sign of overoptimism. The major difference in the bull markets is that the 10 year treasury yield averaged 4.5% to 5.0% during the 2007 peak, while today they are 1.9%. With the spread between cap rates and treasury rates still 2.5% to 4.0%, real estate still provides attractive spreads compared to the risk-free rate. So why are interest rates so low?
Stagnation in Foreign Economies = Low Interest Rates
Compared to the rest of the world, investments in the United States, including US treasuries, continue to look like a safe haven, keeping interest rates low. The major economies outside the US all have their share of problems.