Tracy is Trending for Office Space
As cities across the nation face weakened economic climate and unexpected changes in consumer behavior caused by the COVID-19 pandemic, the office real estate market experienced lowered rents and increased vacancies in 2020, particularly in dense urban areas, as employers shifted to the remote work model and many large employers put their office space on the market. As the national and state economies are adjusting to the post-COVID normal and employers are figuring out new ways to balance remote and in-person work environments, the future of office is being reshaped. Workspace preferences are shifting closer to where employees live (e.g. away from the central business district) and towards the hybrid model with satellite offices that enable a flexible work environment. Major population centers, like Tracy, are benefitting from this paradigm shift.
The City of Tracy is a community of nearly 100,000 people located directly to the east of the Tri-Valley region of the Bay Area. While historically developing as a residential community, Tracy has experienced strong office trends during the COVID-19 pandemic due to its limited supply of office space and strong demand generated by local tenants. Major companies such as Amazon, Medline, Fisher Scientific, and Zinus are locating here as they leverage local labor force accessibility and a lower cost of doing business relative to the Bay Area. With access to the labor force of nearly 2 million, Tracy draws from the Bay Area, Central Valley, and Sacramento metro areas for top talent. Additionally, business-friendly City policies and approach by staff result in streamlined permitting processes and make Tracy a desirable destination for long-term growth.
The California Employment Development Department has reported a significant increase in recent job creation in the Stockton-Lodi Metropolitan Statistical Area, which includes Tracy. Many of those jobs are in office user industries, such as professional, scientific, government, education and health services sectors. This growth will continue driving demand for office space in Tracy. Additionally, as the industry is working towards satellite office and accommodation of work space closer to where employees live, demand is likely to continue growing.
Tracy has 800,000 square feet of office uses that include a blend of traditional office and medical office space. Tracy is experiencing a sixth consecutive year of strong office trends with increasing rents and vacancies below five percent, as shown in the chart below. With annual rents in the $24 per square foot range, Tracy office space is priced substantially below those in the adjacent Bay Area markets. For example, annual office rents in San Francisco are $62 per square foot, while rents in the East Bay and San Jose are $38 per square foot and $61 per square foot, respectively. By contrast, office vacancies have been substantially affected by COVID-19 in the Bay Area with vacancies in San Francisco at 13.4 percent, East Bay at 12.4 percent, and San Jose at 11.9 percent. The relative resilience of the Tracy office market indicated strong and diversified demand in the City.
Current Office Projects
Tracy is a regional hub for healthcare with two major hospitals and medical support industry. With rapid forecast for healthcare job growth, Tracy’s medical office cluster is developing along the western portion of Grant Line Road. In April 2021, the City approved a proposal for a new 10,000 square-foot multi-tenant medical office building. The project continues the expansion of the Triad Medical Office Center with two existing medical office buildings constructed in the mid to late 2000s.
Meanwhile, encouraged by strong office indicators, Prologis is building a 35,000 square foot office building at the International Park of Commerce. The office building will be the first of its kind in the global portfolio of Prologis, the world’s leading real estate company and an addition to its existing industrial portfolio in Tracy, which includes Crate & Barrel, Smuckers, Home Depot, and Fedex among others. The office building is the latest addition to Tracy’s International Park of Commerce, an 1,800-acre master planned business park, one of the largest across the Country.