From San Francisco Business Times | By Sarah Klearman

Aug 10, 2022

After a slow two years. it’s been an eventful few months for the Tri­ Valley’s office market.

The East Bay area has seen three major office leases signed in about as many months this summer:

Vagaro. the Pleasanton-born online scheduling startup, took
106.000 square feet of sublease space at 4430 Rosewood Drive in Pleasanton from software company Ellie Mae.

Snowflake, a publicly traded cloud-based computing company with another regional office in San Mateo, expanded its Dublin office from a single floor at 4140 Dublin Blvd. to the entire 153,000-square-foot building, owned by Hines.

And Unchained Labs, a Tri-Valley biotech, more than doubled
its existing footprint in the region, signing for the 121,000- square-foot office property at 4747 Willow Road in Pleasanton. Essex Property Trust owns the building.

The deals are an encouraging sign for the Tri-Valley, whose office market, like that of many of its suburban Bay Area peers, has languished through most of the pandemic. Tenants in the region appear to be warming to the kind of long-term real estate commitments that they made pre­ pandemic, according to Dan Watson, who helms real estate firm Newmark’s Pleasanton and Walnut Creek offices.

“That is a big shift from earlier in the pandemic, when we were doing six-month, 12-month or two-year Band-Aid extensions,” Watson told me. “Now companies that haven’t had the chance to make these long-term decisions are sitting down with their teams, with their brokers, and they’re
coming up with a strategy.”

For Vagaro, Snowflake (NYSE: SNOW) and Unchained, the strategy is expansion. Unchained, which did not respond to request to comment, said in a press release announcing its new lease that it had been “busting at the seams”; it plans to convert a portion of the building for lab use and relocate its entire workforce to 4747 Willow, which sits on 12 acres.

Vagaro found that size constraints at its previous 19,000- square-foot office in Dublin were getting in the way of its growth, CEO Fred Helou said.

“Every two to three years, we’re having to look for space;’ he told me. “In the past it’s been a hindrance to growth -web can’t hire people because we don’t have the space.”

The company, whose 200 Pleasanton employees are in the office five days a week, does not have predetermined hiring goals- employees are brought on to support revenue growth, Helou said – but expects to grow into the 106,000 square feet over time. The company signed a three-year contract with Ellie Mae for the Rosewood Drive space but expects to stay longer than that, Helou said.

Snowflake, which has maintained an office in Dublin since 2019, expects to add around 500 employees in the Tri-Valley over the next few years, Vice President of Global Workplace and Real Estate Warrick Taylor told me, adding the company does not expect to begin occupying the space until early next year. Employees are not currently required to work from the office, Taylor said, but the company is beginning to see teams return a few days a week of their own volition.

“The pandemic pretty much put a pause on commercial real estate transactions -we weren’t any different from most other companies that way. But in the meantime, we carried on growing,” Taylor said. “We need to provide the real estate footprint to facilitate that.”

Helou and Taylor both said their companies had chosen to double down on the Tri-Valley in part because of its labor pool, which in large part comprises workers who might have moved from more urban parts of the Bay Area to buy a house, start a family or send their kids to better public schools. For those workers, a commute to work in the Tri­
Valley doesn’t involve the same kind of traffic and hassle as a commute to San Francisco or San Jose does.

Those have long been qualities that draw employers to the Tri-Valley, said Jeff Birnbaum, a Walnut Creek-based senior vice president with real estate services firm CBRE. CBRE’s Phil Damachino and Luke Ogelsby represented Snowflake in its expansion at 4140 Dublin; Birnbaum and Andy Schmitt represented Hines.

The second quarter was the first since the third quarter of 2019 that the Tri-Valley has recorded positive net absorption
-meaning tenants absorbed more office space than they vacated. Still, tenant requirements, the quantity of space prospective tenants are seeking, declined from 1.8 million square feet to 1.2 million, according to data from CBRE.

It’s not that the region has seen an exodus of tenants in recent months; rather, many prospective office users have been made newly cautious by the past few months’ worth of economic volatility, Birnbaum said.

Subsequently, Newmark’s Watson said, many area companies are factoring cost-cutting measures into their long-term real estate strategies. That includes software provider ADP, which is set to close its longtime office in Pleasanton in the spring of next year.

we are still one step forward, two steps back,” he said of the area’s office leasing. “For every tenant in 10,000 square feet that decides to expand into 15,000 square feet, there’s a
number of tenants who are coming back from the pandemic and saying, we learned to do more with less. We were in 10,000 square feet, now we’re going to 5,000 square feet.”

Vacancy rates remained relatively stable at 17.7% in the second quarter, according to CBRE’s data, which does not include the more-recently signed Unchained Lease.

Originally posted