2016

APPENDIX B: Market Analysis

1. INTRODUCTION

Overview

The purpose of this study is to provide an overview of economic and real estate market conditions in the Bay Fair BART TOD Specific Plan (BFSP) area, the City of San Leandro, and the Market Area (stretching from Oakland to Union City), with the goal of providing insight and recommendations for appropriate future land uses to be included in the BFSP, as well as implementation strategies that are in sync with market conditions. The goal of the BFSP is to outline development potential, opportunity sites, and public investments/actions which will guide the BFSP area’s transition into an interconnected, higher- density, mixed-use transit-oriented development (TOD).

This report explores preliminary real estate market demand and financial feasibility considerations for new development, and identifies preliminary strategies for overcoming barriers to transformation of BFSP into a transit-oriented district. In later phases of work Strategic Economics will more fully test the financial feasibility of development prototypes through pro forma analyses. The results will gauge the impacts of development incentives and market conditions on development feasibility. Strategic Economics will also prepare an implementation strategy for the specific plan.

This introductory chapter sets the stage for the rest of this report by presenting an overview of key issues for transforming the BFSP area into a future TOD district, a description of the competitive market areas used for this analysis, and a description of report contents. This introduction also examines the planning area’s competitive context, including historical forces that shaped its development.

Key Research Questions

The analyses in this report are focused on several key questions identified in conjunction with City of San Leandro staff based on previous assessments and insights into the BFSP area:

§ Based on market and local conditions, what are achievable long-term goals for transformation of the BFSP area? § Based on market trends, location, and local conditions, what land uses and building types are most likely to lead development in the near term versus longer-term? § To what extent does BART access and proximity influence the BFSP area’s development potential? § How will the BFSP area’s large concentration of retail uses need to evolve in response to changing market conditions? § What lessons can be learned from transit-oriented developments at other BART stations within the market area that are also likely to drive demand and development at this study area? § What public improvements are needed and should be prioritized in order to facilitate transformative development in the BFSP area?

Historical Context

Today’s market context and opportunities for future development in the BFSP area are partly shaped by the area’s history. This section examines the BFSP area’s historical context, including its role relative to other BART station areas along the Fremont/Richmond line, including Downtown San Leandro, South Hayward and Union City.

Development of the BFSP area began in earnest in the immediate post-World War II period. Prior to World War II, San Leandro and Hayward were the only cities south of Oakland in a largely agricultural portion of Alameda County; both cities included historic downtowns. By the 1950s, much of the land around the BFSP area was rapidly developing into primarily single family neighborhoods. This development was enabled by easy automobile access, while demand for housing was driven by the burgeoning employment opportunities in San Leandro’s fast-growing industrial base along the I- 880 corridor to the west. This western industrial development took advantage of the City’s rail lines and easy access to the Port of Oakland and Oakland’s airport.

Bayfair Center opened in 1957 in an ideal location to serve the large and growing residential base of Oakland, San Leandro, Hayward, and surrounding communities. Built on the site of a former racetrack, Bayfair Center was located along the historic State Route 185 (E. 14th) corridor connecting San Jose and Oakland. Bayfair Center’s location at Highway 185 and Hesperian Ave was a major crossroads of significant local postwar growth, while the nearby existing and planned I-880, I-238, and I-580 freeways created new regional connectors in all directions.

Bayfair Center was also positioned along a planned BART corridor intended to serve and provide greater accessibility to fast-growing East Bay communities. Bayfair Center was located along a historic rail corridor linking San Leandro and Hayward’s downtowns; by the late-1950s, this corridor was already targeted for construction of BART’s north-south East Bay service. BART began running this service in 1972, linking the historic downtowns and the new “suburban” commuter stations at Bay Fair, South Hayward, Union City, and Fremont.

2 | CITY OF SAN LEANDRO BAY FAIR BART TOD APPENDIX B: MARKET ANALYSIS

The Bay Fair, South Hayward, and Union City stations were initially intended to serve as park-and-ride facilities, with little surrounding development. Fremont planned for a future downtown around its station, but the physical and functional character of its station was similar. Today, these four cities are all attempting to convert these stations from park-and-ride formats to transit-oriented communities, while San Leandro and Hayward are attempting to better-integrate stations into their existing downtowns and/or nearby commercial corridors.

Today, the BFSP area continues to enjoy strong regional access from arterial roads, nearby freeways, and BART, but its role as a regional retail cluster is confronting limited growth in demand due to slower growth in surrounding communities, declining per capita spending power, and broader trends favoring luxury and discount retail instead of middle-market stores. The Bay Fair BART TOD Specific Plan presents an opportunity to tie together, modernize, and enliven the district such that it leverages BART access and allows it to function as more than the sum of its parts.

Study and Market Area Boundaries

This study examines the BFSP area’s conditions and trends relative to surrounding communities and the larger “Market Area” – defined below – within which the BFSP area competes for residents, office tenants, and retail customers. A variety of geographies are referenced throughout this report based on the most-relevant comparisons and availability of data:

§ BFSP area: The BFSP area is the actual Bay Fair BART TOD Specific Plan area, located southeast of Downtown San Leandro, between Interstate 880 and Interstate 580. Its boundaries are shown in Figure 1, and encompass primarily Bayfair Center, nearby Fashion Faire Place, Fairmont Square, and a stretch of Hesperian Blvd between East 14th Street and the City’s southern border. § BFSP Census Tracts: Figure 1 also shows the census tracts used for all census-based analyses in this report. In order to allow historical comparisons, these tracts were selected based on those which intersected a half-mile radius of Bay Fair BART station as of 1990 (some tracts were subdivided in subsequent years). The half-mile radius was selected since it represents an approximate ten minute walk to the station. § Market Area: This is the competitive market area examined for housing, office, and regional retail. This area stretches from Oakland to Union City and includes all areas in-between, as shown in Figure 2. This is the primary area within which San Leandro competes for residents, office-based businesses, and against other regional centers for retail customers. It was established based on broker and developer input and locations of competing housing, office, and retail uses. Since Bay Fair BART station is likely to be the strongest driver of new demand for future development in the BFSP area, the Market Area also represents the extent of other BART stations which primarily compete for transit-oriented development in this region. The Market Area should not be confused with a retail trade area; while the Market Area is intended to describe the broader area within which regional

EXISTING CONDITIONS ANALYSIS| 3

retailers compete against one another, a trade area more narrowly defines the area from which a given center primarily draws its current customers. § Surrounding communities and Alameda County: The BFSP area and BFSP Census Tracts are also frequently compared to San Leandro, nearby incorporated and unincorporated communities, and Alameda County as appropriate or dictated by data limitations.

Contents

Following this introduction, Chapter 2 provides a summary of key findings from the study and implications for future TOD development in the BFSP area. Chapter 3 provides detailed analysis of demographics and employment conditions and trends, in order to better understand how the BFSP area’s evolving population will impact its future and its competitive position in the City and Market Area. Chapters 3 through 6 contain evaluations of the conditions and trends in housing, retail, and office uses, in order to understand market conditions and future market demand.

4 | CITY OF SAN LEANDRO BAY FAIR BART TOD

Figure 1: Plan Area Census Tracts

EXISTING CONDITIONS ANALYSIS| 5

Figure 2: Market Area

6 | CITY OF SAN LEANDRO BAY FAIR BART TOD

2. KEY FINDINGS

Demographic and Employment Trends

Households in the Bay Fair BART TOD Specific Plan (BFSP) area and surrounding neighborhoods are growing in size, becoming more family-oriented, and have modest incomes that are declining over time. Households in this area are large and contain a high share of families compared to the City and County. Incomes are approximately 25 percent lower than the City overall and have dropped by over 17 percent between 2000 and the 2009-2013 period (when adjusted for inflation). Household incomes in the City declined nine percent in the same time period.

The Plan Area contains a significant concentration of retail and service jobs, though Bay Fair BART station currently serves primarily as a park-and-ride origin for workers in the region’s major employment centers. According to San Leandro business license data there were approximately 2,100 jobs in the BFSP area as of 2014, comprising 6 to 7 percent of citywide employment. Despite this job concentration, the Bay Fair BART station primarily serves as an origin station for commuters, the majority of whom arrive by private automobile.

The BFSP area’s existing large households do not necessarily match the demographic profile of future households that may want to live in new TOD housing, but the presence of the Bay Fair BART station creates potential to compete for new residents from within a larger regional pool of households preferring walkable, mixed-use, transit-served locations. The high share of large, family-oriented households in the neighborhoods surrounding the BFSP area are not typically compatible with higher-density multi-family housing products that would concentrate residents near the Bay Fair BART station. However, the presence of the station itself can be leveraged to create a vibrant, walkable neighborhood that can capture regional demand for new TOD communities through new housing development.

Slow Market Area population growth and lower household incomes are constraints on significant growth in retail demand. The Market Area population grew by less than 3 percent between 2000 and the 2009-2013 time period. This rate could improve in the future, but slow growth would be a limitation on expansion of new retail demand in the Market Area.

Real Estate Market Conditions

Residential Strong demand for housing has driven up rents and sales prices countywide, but prices for all housing products in San Leandro lag behind the County and nearby cities; this gap – coupled with limited development opportunity sites – has historically resulted in minimal market-rate multi-family housing construction in the

EXISTING CONDITIONS ANALYSIS| 7

City. San Leandro’s overall median housing prices and average rental rates per square foot, for both existing and newly built projects, are typically 20 to 25 percent lower than Alameda County overall. At the same time, few development sites remain in San Leandro that do not require redevelopment or pose challenging design configurations and settings. As a result, little market-rate, multi-family construction has occurred in the City since the 1990s.

Currently, market-rate townhouse and compact single-family housing products are feasible to construct on vacant or underutilized land in San Leandro. In recent years, the only market-rate, multi-unit housing products that have been feasible to construct in San Leandro are townhouse and compact single-family home products, built on relatively low-cost vacant or significantly underutilized land. These products are typically feasible in moderate-value market areas because the units have low construction costs and can be priced to sell to the City’s predominate residential niche of moderate-income family households. They can also be delivered over time as warranted by market conditions.

San Leandro housing values are rapidly increasing, though not yet high enough to support development of higher-density multi-family housing products that are more likely to support the costs of redeveloping a property with existing uses. Costs are significantly higher to construct higher-density, multi-story “Type V” residential buildings. However, these buildings can also potentially generate greater profits per unit and therefore support the higher land costs and risks of redeveloping a property with an existing use. Attainable rents and values are generally not yet high enough in San Leandro to support the risks and costs of redeveloping properties with existing revenue-generating uses, although early development proposals and input from local developers suggest that rents are gradually approaching a level that could support higher-density housing on lower-cost underutilized sites and highly desirable sites in Downtown San Leandro.

Increasing demand for transit-oriented housing in the Market Area will eventually create supply constraints in stronger market locations farther north and increase demand – and attainable values – for housing in the BFSP area. Rents and prices are approaching a level at which market-rate, multi-story, multi-family housing can become feasible on low-cost sites in San Leandro, but it is unclear whether projects could be completed before prices may moderate. However, growth in housing demand is likely to eventually support multi-family housing development in the BFSP area as supply becomes constrained at BART stations further north. Strategic Economics estimates that San Leandro could potentially capture growth in housing unit demand from smaller households – which are more likely to seek multi-family housing units – of between 95 and 180 units annually by 2025, and 105 and 205 units annually between 2025 and 2040. Downtown is currently best-positioned to capture early demand within San Leandro, though its development opportunity sites are limited.

Although higher-density, multi-story, multi-family housing is not currently feasible in San Leandro and surrounding communities, incentives and indirect subsidies can enable earlier development of such housing near BART stations. Projects at the South Hayward and Union City stations were incentivized through measures including flexible parking requirements / arrangements, grant funding for infrastructure, low- interest federal loans, and public-private partnerships on publicly-owned land.

8 | CITY OF SAN LEANDRO BAY FAIR BART TOD

Recently-completed and under-construction permanently affordable housing developments in San Leandro are providing early examples of higher-density, multi- family, transit-oriented housing in the City. Despite the lack of market-rate activity, several affordable housing projects in San Leandro have been built or are currently under construction. These projects – including Case Verde, Estabrook Place, and Marea Alta – range between three and five stories, and serve as early examples of activity-generating, higher-density housing in the City. They also demonstrate the potential for an affordable housing project to lead development in the BFSP area, since these projects can access separate, lower-cost funding, financing, and revenue sources.

Despite challenges, housing is most likely to lead development in the BFSP area; a number of tools can be used to accelerate this process. Housing is the most promising use for initial development in the BFSP area, due to strong Market Area demand generally and desirability of BART access for commuters. A number of steps can be undertaken to speed development of housing, including safety improvements, improved connectivity between retail, housing, and the station, customized parking management solutions, assistance with basic infrastructure to support higher-density development, and possibly pursuit of affordable housing development as an early transformational project. Retail The BFSP area’s three primary shopping centers comprise approximately 1 million square feet of space in a location with excellent regional automobile and transit access. As a regional-serving retail center, Bayfair Center anchors the plan area’s retail concentration, which also includes Fashion Faire Place and the more local-serving Fairmont Square. This cluster of retail is well-located along E. 14th Street and adjacent to Interstates 880, 238, and 580. The regional access provided by these roadways and the presence of Bay Fair BART station position the BFSP retail centers to compete for customers from throughout the Market Area – and against a variety of other regional centers.

Despite its location advantages, taxable sales in the BFSP area are in a long-term decline after adjusting for inflation. Taxable sales in the BFSP area are in a slow, long- term decline on an inflation-adjusted basis, with losses primarily driven by department stores.

The shopping centers in the BFSP area are being challenged by slow population growth, declining household incomes, and shifts in preferred shopping center formats. The Market Area is largely built-out, and grew less than 3 percent between 2000 and the 2009-2013 period. Inflation-adjusted household incomes have fallen since 2000 in the Market Area. Finally, Bayfair Center represents an older model of an enclosed mall, as opposed to open-air, mixed-use “lifestyle centers” (such as Bay Street in Emeryville) and “power centers” comprised of big box stores (such as at Union Landing in Union City).

The BFSP area’s retail centers have reinvested and re-tenanted in order to address competitive challenges, though the area is unlikely to add large quantities of additional retail space in the future. Reinvestment and re-tenanting – particularly at Bayfair Center – has allowed BFSP area retail to remain regionally competitive. The BFSP area is likely to remain a major retail hub for the foreseeable future. However, growth and income challenges make it unlikely that a major expansion of retail will occur in the BFSP area. Continued changes in formatting – such as creating a more

EXISTING CONDITIONS ANALYSIS| 9

entertainment, dining, and locally-focused center – may also need to occur if major anchor tenants are lost and/or a directly-competing retail center is built in a more favorable location.

The revenue generated by existing retail uses in the BFSP area creates little incentive for property owners to undertake large-scale redevelopment of existing commercial space. Owners of the Plan Area’s major retail centers have undertaken significant effort and expense to retain or attract key anchor tenants and to generate satisfactory returns from existing uses. Unless redevelopment can be accomplished without sacrificing existing revenues, owners do not currently have strong financial incentives to redevelop existing retail space.

The existing retail can serve as an anchor for additional higher-density housing in the Plan Area; that housing, in turn, can help support existing retail. The BFSP area’s shopping centers can provide convenient amenities for new residents and allow developers to reduce on-site amenities in early housing projects. New residents, in turn, will generate demand both for the existing retail offerings as well as more restaurants and convenience retail. Housing can potentially be constructed without loss of existing space on properties including the “King Parcel” parking lot adjacent to Bayfair Center, or on Bayfair Center or BART parking lots (in conjunction with some replacement parking). Office The BFSP area office market is relatively small and largely consists of lower-quality, household-serving office uses; while the citywide office market is improving and evolving, newer product is clustered in the Downtown San Leandro area. San Leandro has historically been an extremely limited office market, dominated by lower quality space and a focus on household-serving professional offices. Creekside Plaza and the San Leandro Tech Campus in downtown are gradually building an initial base of high-quality, well-anchored office space in the City, and may help lead the transformation of Downtown San Leandro into a notable office center. However, there are few indications that the BFSP area is currently desirable as an office location, particularly compared against Market Area competitors like Downtown San Leandro and Downtown Oakland.

Given recent and planned development, San Leandro can expect to capture a larger share of new demand than in the past, though most office demand is likely to be captured in Downtown San Leandro in the foreseeable future. Strategic Economics estimates that San Leandro could potentially capture growth in demand for between half a million to a million square feet of office space by 2040. However, current planned and proposed projects in Downtown San Leandro and the Marina Shoreline area total nearly 700,000 square feet and are likely to absorb much of this demand.

If office space in Downtown San Leandro is successful, the BFSP area could become a more appealing office destination, though this is unlikely to happen for the next three to five years, if not more. The BFSP area would need an anchor or cluster of office uses to succeed as an office destination. Success in Downtown San Leandro may eventually open opportunities for office development in the BFSP area as users seek new opportunities near BART. Development of office space in the BFSP area is largely contingent on interest by a single large user since speculative development is unlikely in this weak office market area. A similar strategy was used at Creekside Plaza and the San Leandro Tech Campus downtown, which were respectively anchored by

10 | CITY OF SAN LEANDRO BAY FAIR BART TOD

homegrown companies TriNet and OSIsoft. BART itself may also have a long-term interest in office development at Bay Fair Station, as the agency seeks to balance rush- hour service capacity through reserve-commuting to employment destinations away from the region’s core. Future Development Opportunities

Although current demographic and market indicators suggest limited development opportunities near the Plan Area in the short run, the Plan Area itself has long-term potential for transformation due to the presence of large property owners (particularly at the three largest shopping centers, BART, and the “King Parcel” adjacent to Bayfair Center), BART access and proximity, and the continued demand for housing in the larger Market Area. Early development is most likely to occur on underutilized or non-revenue generating sites – such as the King Parcel – or large properties that allow for greater flexibility in accommodating parking, a larger number of units, and a mix of uses.

The current revenue generated by existing retail uses in the BFSP area – after significant reinvestment – suggests that large-scale redevelopment of these sites is a long-term proposition, with development more likely to occur on surface parking lots or in conjunction with smaller reconfigurations of retail centers. It is unlikely that the Plan Area’s existing retail centers will undertake large-scale redevelopment in the near future. However, development remains a possibility on parking lots if sufficient replacement parking can be provided.

The Plan Area is better positioned for capturing housing demand than office demand in the short-term, suggesting that early development opportunity sites – and transformative TOD opportunities – are likely to be developed as housing. Housing demand is high and projected to grow in the Market Area. Pressure from constrained supply elsewhere in the Market Area will continue to increase attainable rents and values in BFSP area, potentially enabling development within the next five to fifteen years. In contrast, much of the demand for office space is likely to be captured in alternative existing office nodes (such as Downtown Oakland or the emerging Downtown San Leandro cluster). Incremental growth in retail demand is unlikely to support significant additional retail space in the BFSP area.

Development in the Plan Area could be accelerated through public infrastructure and connectivity improvements, public-private development partnerships, and exploration of affordable housing development opportunities. Public investments and development incentives can be used to reduce costs for developers and enable earlier development. Interviews with developers, review of BFSP area conditions, and review of tools used in the Union City and South Hayward BART station areas suggest several opportunities:

• Improve connectivity such that the retail becomes an integrated anchor for the new housing (thus requiring less investment in amenities by developers) • Work with property owners to identify a long-term parking solution as development occurs, including parking garage construction and/or creation of a joint powers authority to manage parking • Invest in new infrastructure supporting higher-density development • Partner with affordable housing developers that can access different financing sources

EXISTING CONDITIONS ANALYSIS| 11

3. DEMOGRAPHICS AND EMPLOYMENT TRENDS

Overview

This chapter examines demographic and employment trends in the Bay Fair Specific Plan (BFSP) area compared to the City of San Leandro, the Market Area, and Alameda County over the last two decades. These comparative trends show the BFSP area’s competitive positioning relative to the other reference geographies.

For the purposes of the demographic analysis, the BFSP area is defined as the census tracts accounting for approximately a half mile radius from the Bay Fair BART station, as described in the Introduction and seen in Figure 1 on page 5. These census tracts include areas beyond the BFSP area boundary, but were selected since they describe relatively accurate small-area census data and also incorporate conditions in neighborhoods immediately surrounding the BFSP area. The Market Area, as described in the Introduction and shown in Figure 2 on page 6, is defined as the cities of Alameda, Oakland, San Leandro, Hayward, Union City, and the unincorporated areas of San Lorenzo, Ashland, and Cherryland. The City of San Leandro and Alameda County are also included as comparison geographies.

Employment analyses were based on San Leandro business license data originally analyzed in 2014 by Strategic Economics for the San Leandro General Plan Update. The boundaries of the General Plan “Bayfair” subarea data described in this section are similar to the BFSP boundaries. Commute analyses were based on U.S. Census Longitudinal Employer-Household Dynamics data.

APPENDIX B: MARKET ANALYSIS

Population and Household Characteristics A largely built-out area, the population in the Market Area is growing relatively slowly compared to the County. As shown in Figure 3, while the County grew by 6.3 percent between 2000 and the 2009-2013 period, the Market Area grew 2.8 percent.

The population in the BFSP Census Tracts is growing more rapidly than the City or the Market Area as whole, and household sizes are also growing. The population of the BFSP Census Tracts grew significantly faster (12.6 percent) than the City or Market Area between 2000 and the 2009-2013 period. Similarly, BFSP Census Tracts’ average household size increased faster than in the City and Market Area, from 2.6 to 2.9 between the 2000 and 2009-2013 period, versus from 2.6 to 2.8 in the City and from 2.6 to 2.7 in the Market Area. This indicates that population increases within the BFSP Census Tracts are occurring through a shift towards larger households, rather than through the addition of new households.

A generational shift is occurring in the BFSP Census Tracts, with rapid growth in families with children. Between 2000 and the 2009-2013 period, children under 18 years old increased by 14 percent in the BFSP Census Tracts, while the 55 and over population increased by only 7 percent (Figure 4). This is reflected in the current age distribution, with 27 percent of the BFSP tract population under the age of 18 as of 2009-2013, compared to 21 and 22 percent in San Leandro and the Market Area respectively (Figure 5).

The Latino share of the population in the BFSP Census Tracts is rapidly increasing, as in San Leandro overall. Since 2000, the Latino population in the BFSP Census Tracts increased 54 percent compared to 49 percent in San Leandro overall. In comparison, the Market Area experienced a 24 percent increase in Latino population.

Per capita and household incomes in the BFSP Census Tracts are relatively modest compared to San Leandro and the Market Area, and are growing more slowly. The median household income in the BFSP Census Tracts has followed the same general trend as the overall Market Area and City, but is consistently and increasingly lower than these areas. As seen in Figure 11, the median household income for these census tracts is approximately $49,000, compared to $64,000 and $68,000 in the City and Market Area respectively. Given the higher average household size and prevalence of children in the area, this indicates that per capita incomes are also lower than in comparable areas.

14 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Figure 3: Population and Household Characteristics 1990 to 2009-2013

BFSP Census Market Alameda San Leandro Tracts Area* County Total Population 1990 29,204 68,223 729,849 1,279,182 2000 35,329 79,452 814,622 1,443,741 2013 39,773 86,038 837,547 1,535,248 % Change, 1990-2000 21.0% 16.5% 11.6% 12.9% % Change, 2000-2013 12.6% 8.3% 2.8% 6.3% Total Households 1990 12,843 29,128 276,946 479,518 2000 13,477 30,642 294,485 523,366 2013 13,778 30,759 300,212 545,071 % Change, 1990-2000 4.9% 5.2% 6.3% 9.1% % Change, 2000-2013 2.2% 0.4% 1.9% 4.1% Average Household Size (Persons Per Household) 1990** 2.3 2.3 2.6 2.7 2000 2.6 2.6 2.7 2.7 2013 2.9 2.8 2.7 2.8 % Change, 1990-2000 14.3% 11.0% 2.5% 1.2% % Change, 2000-2013 11.5% 7.7% 0.0% 3.7% Renter-Occupied Housing as a Percent of Total Housing Units 1990 63% 41% 53% 47% 2000 62% 39% 52% 45% 2013 65% 44% 53% 47% Owner-Occupied Housing as a Percent of Total Housing Units 1990 37% 59% 47% 53% 2000 38% 61% 48% 55% 2013 35% 56% 47% 53% *Market Area includes: Alameda, Oakland, San Leandro, Union City, Hayward, Ashland, San Lorenzo, and Cherryland. **Average household size for 1990 was calculated by Population/Households. Sources: US Decennial Census, 1990, 2000, 2010; US Census American Community Survey 5-Year Estimates, 2009-2013; Social Explorer, 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 15 APPENDIX B: MARKET ANALYSIS

Figure 4: Percent Population Change by Age Group, 2000 to 2009-13

15% 10% 5% 0% -5% -10% 0 to 17 18 to 34 35 to 54 55 to 74 75 years years years years years and over

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Decennial Census, 2000, 2010; US Census American Community Survey 5-Year Estimates, 2009-2013; Social Explorer, 2015; Strategic Economics, 2015.

Figure 5: Population by Age Distribution, 2009-13

35% 30% 25% 20% 15% 10% 5% 0% 0 to 17 18 to 34 35 to 54 55 to 74 years 75 years years years years and over BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

16 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Figure 6: Population Distribution by Race/Ethnicity, 2009-13

40%

30%

20%

10%

0% White, Non- Black or Asian and Hispanic or All Other Lano African Pacific Islander Lano (any American race)

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 7: Population Change by Race/Ethnicity, 2000 to 2009-13

60%

40%

20%

0%

-20%

-40%

-60% White, Non- Black or Asian and Hispanic or All Other Lano African Pacific Islander Lano (any American race)

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Decennial Census, 2000; US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 17 APPENDIX B: MARKET ANALYSIS

Figure 8: Distribution of Households by Type, 2009-13

40%

30%

20%

10%

0% Families with Families without Householder living Other non-family children children alone household

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 9: Change in Households by Type, 2000 to 2009-13

20% 10% 0% -10% -20% -30% Families with Families without Householder living Other non-family children children alone household

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Decennial Census, 1990, 2000, 2010; US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 10: Distribution of Households by Size, 2009-13

40%

20%

0% 1 person 2 person 3 person 4 person 5 or more persons BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

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Figure 11: Median Household Income, 1990 to 2009-13 (in 2015 Dollars)

$80,000 $75,000 $70,000 $65,000 $60,000 $55,000 $50,000 $45,000 $40,000 1990 2000 2013

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Decennial Census, 2000, 2010; US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 12: Educational Attainment of Population Age 25+, 2009-13

30%

25%

20%

15%

10%

5%

0% Less than high High school Some college Bachelor's Master's school graduate degree degree or greater

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 19 APPENDIX B: MARKET ANALYSIS

Figure 13: Median Household Income (Unadjusted)

20 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Employment Characteristics According to San Leandro business license data, the BFSP area contains a significant concentration of jobs, with approximately three-quarters of them in retail, restaurant, and entertainment businesses. Total employment in the BFSP area was estimated at approximately 2,100 jobs as of 2014, comparable to 2004 and down from a peak of approximately 2,500 between 2006 and 2008. Employment in BFSP has consistently maintained a 6 to 7 percent share of citywide employment since 2004. Commute Patterns As shown in Figure 16, workers in the BFSP area tend to commute from nearby locations and locations along the I-880 and BART corridors that run between Berkeley and Union City. While residents of the BFSP area commute to major employment centers throughout the East Bay and San Francisco (Figure 17), workers coming to the BFSP area come from a relatively small area concentrated within San Leandro and along the I-880 and BART corridors. Area workers are less likely to travel long distances to jobs in the BFSP area since such jobs are available throughout the region.

The Bay Fair BART station primarily serves as an origin commuter station for workers in the region’s major BART-accessible employment centers. Figure 14 shows that weekday BART riders at Bay Fair are commuting to and from major employment centers, such as Downtown San Francisco and Oakland. Weekend riders are more likely to access popular shopping and entertainment destinations (Figure 15).

Based on 2008 BART surveys, the majority of Bay Fair riders used the station as a park-and-ride; however, 43 percent of riders arrived by other means. The majority of users, even within a 2 mile radius, arrived by private automobile. In addition, the share of BART riders arriving by transit declined by nearly 10 percent. While this may be indicative of an auto preference, stakeholders interviewed for this study suggested that the station also has a safety perception problem that influences modal preference.

EXISTING CONDITIONS ANALYSIS| 21 APPENDIX B: MARKET ANALYSIS

Figure 14: Top 5 Weekday Origins and Destinations From/To Bay Fair BART, January to August 2015

16% 14% 12% 10% 8% 6% 4% 2% 0% Desnaon Origin Embarcadero Montgomery Street Powell Street Civic Center 12th Street / Oakland City Center

Sources: Bay Area Rapid Transit Monthly Ridership Reports, 2015; Strategic Economics, 2015.

Figure 15: Top 5 Saturday Origins and Destinations From/To Bay Fair BART, 2015 YTD

14%

12%

10%

8%

6%

4%

2%

0% Desnaon Origin

Powell Street Coliseum Embarcadero Montgomery Street Fruitvale

Sources: Bay Area Rapid Transit Monthly Ridership Reports, 2015; Strategic Economics, 2015.

22 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Figure 16: Home Locations of Study Area Workers

EXISTING CONDITIONS ANALYSIS| 23 APPENDIX B: MARKET ANALYSIS

Figure 17: Work Locations for Study Area Residents

24 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Implications for the BFSP Area

Existing demographics in the BFSP Census Tracts do not necessarily match the demographic profile of future households that may want to live in new TOD housing. The demographic composition and trends in the BFSP area indicate relatively large households and a high share of households with children. This area does not offer an obvious pre-existing market for TOD housing development since TOD housing often consists of higher-density projects with relatively small units targeted to smaller households.

However, the presence of Bay Fair BART creates potential to compete for new residents from within a larger regional pool of households preferring walkable, mixed-use, transit-served locations. Current conditions in the BFSP area are not necessarily a limitation to creating TOD at Bay Fair station. The regional employment accessibility afforded by BART proximity makes this area uniquely appealing compared to most other locations in the Market Area. This access – combined with potential improvements which will better integrate BFSP into a cohesive, walkable neighborhood – can allow the BFSP area to attract a diverse variety of residents seeking housing throughout the region.

Slow population growth and lower incomes are constraints on significant growth in retail demand. Although infill housing development continues to occur, rapid growth in larger housing developments is now constrained by the dwindling availability of easily-developed vacant, large, uniform sites that do not require extensive site preparation. Population and household growth has slowed significantly in the Market Area and San Leandro since the 1990s. While the large existing population base will continue to support significant retail space, growth in Market Area retail demand is likely to be limited. Within the BFSP area, relatively low incomes per capita are a further constraint on local-serving retail growth.

EXISTING CONDITIONS ANALYSIS| 25

4. HOUSING MARKET

Overview

This section discusses relevant housing market trends, with a focus on multi-family housing development compatible with transforming the BFSP area into a transit-oriented neighborhood. In order to better understand market opportunities and barriers, this section also examines housing constructed or planned at other nearby BART stations outside an historic downtown setting, focusing on South Hayward and Union City. The findings below are based on market data analyses, extensive interviews with local brokers and developers working in and around the BFSP area and San Leandro, and an examination of recent development projects within the Market Area. This section concludes with an estimate of housing demand and early strategies for incentivizing housing development within the BFSP area.

For the purposes of the housing market analysis, the geographies examined are the BFSP Census Tracts, the City of San Leandro, the Market Area (described in the introduction), and Alameda County. Due to a lack of small area data, the City of San Leandro is frequently used as the base level of geography for the local housing market. Depending on data availability, it is compared to the nearby Market Area communities of Hayward, Oakland, Alameda, Union City, San Lorenzo, Cherryland, and Ashland. It is also compared to Alameda County, where appropriate.

BFSP Existing Housing Characteristics The BFSP Census Tracts feature significantly more multi-family housing compared to other areas, though most of this housing was built in a moderate-density configuration. Fifty-one (51) percent of the BFSP area’s housing stock is located in multi-family buildings, compared to 30 percent in the City and 40 percent in the Market Area. However, 11 percent of existing housing was built in relatively moderate-density configurations, such as duplexes, triplexes, and quadplexes, as opposed to flats. Other common housing types include garden-style complexes or stand-alone apartment buildings with tuck-under parking (often referred to as “soft story” apartments). All of these building types rarely exceed two stories of habitable

MARKET ANALYSIS

floors, and all are relatively inexpensive to build compared to taller, higher-density products of between three and six stories.

A majority of households in the BFSP area are renter occupied, including single family houses. As shown in Figure 3 on page 15, 65 percent of the current households are renters, including a significant portion of renter households living in single family homes. In comparison, the City and Market Area’s renter households comprise 44 percent and 47 percent of all households, respectively.

Figure 18: Types of Housing Stock, 1990 to 2009-2013

BFSP San Market Alameda Census Leandro Area County Tracts Single family Units as a Percent of Total Housing Units 1990 44% 65% 57% 59% 2000 45% 67% 59% 61% 2013 47% 67% 58% 60% % Change, 1990-2000 1.0% 3.2% 2.8% 3.1% % Change, 2000-2013 4.5% -0.2% -0.3% -0.8% Multi-Family Units as a Percent of Total Housing Units 1990 51% 31% 40% 38% 2000 52% 30% 40% 38% 2013 51% 30% 40% 38% % Change, 1990-2000 1.8% -2.7% -1.1% -1.9% % Change, 2000-2013 -2.8% 0.2% 0.6% 1.6% Sources: US Decennial Census, 1990, 2000, 2010; US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 19: Current Housing Units by Type, 2009-13

70% 60% 50% 40% 30% 20% 10% 0% 1 unit, 1 unit, 2 to 4 5 to 9 10 to 49 50 or Other detatched aached units units units more units BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

28 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Rents and Sales Prices Housing prices in San Leandro lag behind the County and nearby Market Area cities. Between 2010 and 2015, San Leandro housing sales prices per square foot were typically 20 to 25 percent below the countywide average. Though value data was unavailable for the Market Area as a whole, the price per square foot in San Leandro is lower than neighboring cities, such as Hayward and Oakland, and Alameda County (as shown in Figure 20 and Figure 21).

Similar to housing prices, rents in San Leandro are typically lower than the County and neighboring Market Area cities, and the gap is widening. San Leandro rents per square foot were 23 percent below the countywide average by late 2014 (Figure 22).

Rents and sales prices have rapidly risen countywide. With high housing demand and limited new supply, rents and sales prices have increased significantly in recent years. In Alameda County, the average rent per square foot increased 22 percent between early 2013 and late 2014. At the same time, median housing prices increased 44 percent between June 2010 and May 2015.

Figure 20: Median Single Family Sales Prices, June 2015

City Price Per SF Median Sale Price San Leandro $352 $473,200 San Lorenzo $362 $542,300 Hayward $348 $466,200 Oakland $361 $477,300 Castro Valley $425 $645,600 Alameda County $387 $693,500 Sources: Zillow, 2015; Strategic Economics, 2015.

Figure 21: Median Single Family Price Trends, 2010-2015

2010 2011 2012 2013 2014 2015* San Leandro $341,000 $303,000 $306,000 $412,000 $467,000 $542,000 *Prices are a snapshot of June Median Prices, except for 2015, which is May. Sources: Zillow, 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 29 MARKET ANALYSIS

Figure 22: Multi-Family Rent Summary, 4th Quarter 2014

Average Average Rent Rent PSF San Leandro $1,412 $1.88 Hayward $1,624 $2.02 Oakland $2,467 $2.93 Alameda County $2,002 $2.45 *RealFacts reports rents on a jurisdictional level, for buildings with 50 or more units. Sources: RealFacts, 2014; Strategic Economics, 2015.

Figure 23: Multi-Family Rent per Square Foot Trends, 2010-2015

Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- 2013 2013 2013 2013 2014 2014 2014 2014 San Leandro $1.60 $1.62 $1.66 $1.71 $1.74 $1.76 $1.82 $1.88 Hayward $1.64 $1.67 $1.71 $1.83 $1.82 $1.85 $1.97 $2.03 Oakland $2.31 $2.38 $2.50 $2.52 $2.58 $2.83 $2.97 $2.93 Alameda County $2.00 $2.02 $2.10 $2.18 $2.17 $2.22 $2.35 $2.44 *RealFacts reports rents on a jurisdictional level, for buildings with 50 or more units. Sources: RealFacts, 2014; Strategic Economics, 2015.

Development Trends Housing unit production has slowed significantly in the BFSP Census Tracts since 1990, largely due to a limited supply of vacant and easily redeveloped opportunity sites. Only 13 percent of the current housing units in the BFSP Census Tracts were built since 1990 (Figure 24). In comparison, 14 percent of the current housing stock in the BFSP area was built in the 1980’s and 21 percent built in the 1970’s. A relatively high share of housing in the BFSP Census Tracts was constructed in the 1950’s and 1960’s compared to San Leandro overall. In Alameda County, the annual percentage of new single-family and multi-family housing building permits has been consistent with 53% of permits being for multi-family and 47% for single-family in 2014 (Figures 25- 26). The California Department of Finance estimates that approximately 2,800 net additional housing units were added in San Leandro between 2000 and 2015.

Recent San Leandro market-rate development projects have largely consisted of townhouse units; these units meet demand for a family-oriented product type that is inexpensive to build and is able to support costs for vacant and underutilized land – but probably not redevelopment of more highly-improved land. As shown in Figure 27, recent market-rate projects in San Leandro have been predominately compact attached and detached single family building types, such as townhouses and small lot single family. Their low construction costs allow them to be priced to sell to San Leandro’s dominate niche of moderate-income family households, while the units themselves provide enough space for a family-oriented life style, with private outdoor space and private garage parking. The units can also be delivered individually, as warranted by market conditions. However, the lower densities of these units make them unlikely to support higher values for already-improved land.

30 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Larger recent and planned multi-family housing developments in San Leandro and surrounding areas are primarily subsidized affordable housing. As shown in Figure 27, recent development of larger multi-family housing (e.g., multi-story complexes of 50 or more units) has been dominated by subsidized affordable housing. The affordable housing projects demonstrate community willingness to accept higher- density housing configurations near transit, an important step in a community wanting to add higher-density housing.

Market-rate multi-family housing projects are being constructed at comparable nearby BART stations; however, many of these projects were supported by 1 development incentives and public subsidies. Recently, Type V0F0F multi-story, multi- family development projects have been built and absorbed at the Union City and South Hayward BART station areas, with additional market-rate development in the planning and construction phases (see “Cadence” and “34588 11th Street” in Figure 28). However, much of this development was made feasible through various forms of public subsidies, as described on page 37. These projects have demonstrated demand for TOD multi-family housing in the Market Area, including San Leandro, and developer expectations that prices or rents will increase in the future. Subsidies may still be necessary to make the higher density product types feasible. Unfortunately, the city-level incentives used to accelerate development – most commonly provided through redevelopment project areas – are no longer available after the Great Recession in 2008 and the elimination of redevelopment agencies statewide in 2012.

Asking rents for new market-rate multi-family projects in the Market Area are between approximately $2.40 and $3.40 per square foot; developers believe that high-end projects in San Leandro could attract rents up to $2.75 currently. Based on review of recently-completed projects and interviews with developers, typical attainable market rents for new rental projects near BART are within the $2.25 to $3.00 per square foot range, with highest asking rents of up to $3.40 in Avalon Bay’s project near the Union City BART station.

San Leandro housing values are not yet high enough to support the higher-density multi-family housing products that can potentially support the costs of redeveloping a property with existing uses. Higher-density Type V buildings are expensive to build compared to townhouse products, but can also potentially generate greater profits per unit and therefore support the higher land costs and risks of redeveloping a property with existing revenue-generating uses, such as the BFSP area’s commercial properties. However, delivery of large, dense multi-family projects is challenging in San Leandro for several reasons: 1) attainable rents and sales prices are lower than in other parts of the region; 2) construction materials and labor costs are similar throughout the region; and 3) it is difficult to absorb a large number of new compact, high-end units at once in San Leandro. Developers interviewed for this study stated that Type V higher-density projects approach feasibility on relatively inexpensive sites above $3 per square foot in San Leandro, though rents for high-end products in the City are still below this level.

Developers interviewed for this study noted that transit-oriented developments near BART can attract young professionals seeking new locations due to rising prices

1 “Type V” construction refers to wood frame buildings (as opposed to steel or concrete) typically up to four stories tall, or up to six stories tall if built on top of a one-

EXISTING CONDITIONS ANALYSIS| 31 MARKET ANALYSIS

elsewhere in the region. It is possible that the BFSP area may benefit from this demand as it continues to push outwards from other BART stations further north, and particularly as Downtown San Leandro continues to gain strength and development opportunity sites are built out.

Figure 24: Share of Housing Units by Year Built, 2009-13

30% 25% 20% 15% 10% 5% 0% 1939 or 1940 to 1950 to 1960 to 1970 to 1980 to 1990 to 2000 or earlier 1949 1959 1969 1979 1989 2000 later

BFSP Census Tracts City of San Leandro Market Area Alameda County

Sources: US Census American Community Survey 5-Year Estimates, 2009-2013; Strategic Economics, 2015.

Figure 25: San Leandro Annual Percent of New Building Permits by Type, 2000 to 2014

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Units in All Mul-Family Structures Units in Single-Family Structures

Sources: US Department of Housing and Urban Development, State of the Cities Data Systems 2015; Strategic Economics, 2015.

32 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Figure 26: Alameda County Annual Percent of New Building Permits by Type, 2000 to 2014

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Units in All Mul-Family Structures Units in Single-Family Structures

Sources: US Department of Housing and Urban Development, State of the Cities Data Systems 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 33 MARKET ANALYSIS

Figure 27: Selected Recent Residential Development in the Market Area

Market-Rate Project or Unit Name Address City Developer Affordable Product Type(s) s Rent/Sales Prices Rent PSF Stage Ashland 166th Ave and E Ashland/Cherrylan Opened Village 14th St d Eden Housing Affordable Family Housing 142 N/A 2015 Walker Townhouses and Completed Landing 1433 North Lane Hayward Eden Housing Affordable Apartments 78 N/A 2009 Casa Verde 2398 East 14th St San Leandro Mercy Housing West Affordable Apartments 68 N/A Built 2008 Estabrook Place 2103 E. 14th St San Leandro Eden Housing Affordable Apartments 51 N/A Built 2010 $500,000s to high Cherry Washington Ave/ Townhouses, $600,000s for 3-4 Glen Springlake Dr San Leandro EF Communities Market-Rate Detached 43 bed Built 2014 Apartments/ Station MidPen Housing Commercial Center 34800 11th Street Union City Corporation Affordable space 157 N/A Built 2011 1 bed: from $3.36; 1 bed: from 2 bed: $2,295; from 2 bed: from $2.58; $2,960; 3 bed: Avalon Bay Union Square Union City Avalon Bay Market-Rate Apartments 439 3 bed: from $3,770 from $2.42 Built 2009 Townhouses $475,000-$685,000 Townhouses, (2-3 bed); Pacific Rental and For- 3 bed apt renting Terrace 35081 11th St Union City KB Homes Market-Rate Sale 216 for $2,900 Built 2008 Source: City of San Leandro, 2015; Interviews with local developers, 2015; Strategic Economics, 2015.

34 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Figure 28: Selected Planned and Proposed Residential Development

Project Name Market-Rate Product Rent/Sales (if available) Address City Developer or Affordable Type(s) Units Prices Rent PSF Stage Resources for Ashland Family Kent and 14th Ashland/ Community Housing St Cherryland Development Affordable Family Housing 85 N/A Under Construction 151 Market- affordable/ Rate: 1 bed Affordable 206 from $2,000; Dixon St, Near and Market- Market- 2 bed from Cadence BART Hayward Eden Housing Rate Apartments Rate $2,400 Under Construction Downtown Hayward Meta Housing Affordable Senior Apartments 808-818 A St Hayward Corporation Senior Apartments 60 N/A Dollar Street Townhouses 25993 Dollar St Hayward KB Home Market-Rate Townhouses 38 Proposed 22471-22491 Maple Court Maple Court Maple Ct Hayward Homes Market-Rate Condos 44 Approved 353 B St Hayward KB Home Market-Rate Single Family 57 Entitled

Entitled in 2007; One Sold as fully permitted Burnley Development project a year ago; Commons 789 A St Hayward LLC Market-Rate Apartments 24 Unclear status

23830 & 23836 Single Saklan Family,Attache 25 Road;24137 Valley Oak d and detached, Eden Pointe EdenAvenue Hayward Partners Market-Rate Detached 10 duets Proposed Eden Avenue & Westlake Single Family, Denton Hayward Urban Market-Rate Detached 36 Proposed 1818 & 1842 Single Family, Hill Westlake Detached and Avenue Hayward Urban Market-Rate Attached 29 Proposed Mission Blvd and Industrial Valley Oak Holiday Bowl Parkway Hayward Partners Market-Rate Townhouses 75 22301 Foothill Dollinger The Phoenix Blvd Hayward Properties 545 1400 San San BRIDGE Affordable 1st Phase (115 units) Marea Alta Leandro Blvd Leandro Housing and Senior Apartments 200 N/A Under Construction

EXISTING CONDITIONS ANALYSIS| 35 MARKET ANALYSIS

Shoreline Mixed San Cal-Coast Use Leandro Development Market-Rate Apartments 354 Proposed in the EIR E 14th and San Callan Ave Leandro Market-Rate Apartments 90 Proposed Washington San Gordan and Thornton Leandro Galvan Market-Rate Apartments 60 Proposed Apartments, Windflower Live/Work, and Approved; 34588 11th St. Union City Properties Market-Rate Retail 243 Scheduled 2017 Source: City of San Leandro, 2015; City of Hayward, 2014; CoStar, 2015; Ashland-Cherryland Business District Specific Plan, 2015; Interviews with local developers, 2015; Strategic Economics, 2015.

36 | CITY OF SAN LEANDRO BAY FAIR BART TOD MARKET ANALYSIS

Strategies for TOD Housing Development at the South Hayward and Union City BART Stations

The Union City and South Hayward BART stations represent a similar physical and market context compared to the Bay Fair station area. As a result, these areas offer examples of potential planning, funding, and implementation strategies for TOD development at suburban park-and-ride stations along the Richmond / Fremont BART corridor.

Both South Hayward and Union City underwent extensive planning for the South Hayward and Union City BART station areas beginning in the late-2000s and the late-1990s, respectively. South Hayward’s plan included a master plan for land uses and opportunity sites. An overlay zoning district was established that included mixed-use zones and allowable densities that encouraged higher density development near the BART station, while opportunity sites were given zoning designations specific to their envisioned land use roles. The designation of the area as a redevelopment project area opened up planning and funding resources, including direct financing from the Redevelopment Agency. Hayward also took advantage of a variety of funding sources such as Transit Oriented Development Grants, Proposition 1C Infill Grants, and loans from the Hayward Housing Authority. Beyond planning and funding, the City of Hayward also took initiative in seeking out developers for identified opportunity sites, and the City Council has been proactive in considering changes to the plan to allow for its goals to be achieved. Hayward now has two housing projects under construction adjacent to the station, one of which is subsidized permanently affordable with 151 units, and one of which is market-rate with 206 units.

Union City has been similarly proactive and flexible to achieve its goals for the Station Center development at the Union City BART station. Beginning in the late- 1990s, Union City created an initial plan for the area calling for a mixed-use development in the vacant parcels adjacent to the station, with dense residential uses, 1.18 million square feet of office development, and 100,000 square feet of 2 retail.1F1F At the time of the initial plan in 2001, an environmental impact report (EIR) was completed to streamline development entitlements. After initial construction was completed, and further development interest occurred in the station area, a second EIR was conducted to allow for additional development beyond the initial plan scope and to accommodate shifts in market demand for housing rather than office uses. Redevelopment provided a large portion of the needed funds for infrastructure improvements and environmental remediation. Additionally, the City and BART have worked with developers to arrange for land subsidies and reduced public infrastructure fees to improve feasibility for higher density development. In particular, the City and BART worked together to form a Joint Parking Authority to manage parking, and provide BART replacement parking on city streets. Union City has had success with encouraging both affordable and market-rate residential development, with more than 600 apartments and 200 townhomes constructed, and negotiations are in process for further development.

2 ICF International, “Station District Mixed Use Development Project Draft Environmental Impact Report,” prepared for the City of Union City, August 2010.

EXISTING CONDITIONS ANALYSIS| 37 MARKET ANALYSIS

Housing Demand Projections Strategic Economics estimates that there will be potential demand for nearly 50,000 housing units from small households in the Market Area between 2015 and 2040; San Leandro could potentially capture between 2,500 and 4,900 units. After accounting for absorption of planned and proposed housing developments and adjusting for vacancies, the Market Area will experience demand from smaller households for approximately 50,000 units by 2040. San Leandro could capture between 2,500 and 4,900 units, based on its recent absorption of Market Area multi- 3 family units and its existing share of small households, respectively (Figure 29).2F2F These units could be located throughout San Leandro, but are more likely to be constructed in locations that offer transit/transportation access and easy access to amenities. Strategic Economics developed this demand estimate using household growth projections prepared by the Association of Bay Area Governments. The demand estimate was based on growth in one- or two-person households, which form the primary source of demand for multi-family housing units. However, not all small households will be interested in such units, and not all demand for these units will come from small households.

Regardless of demand, TOD housing development in the BFSP area will be limited until market rents/sales prices are sufficiently high relative to construction costs, development sites become available, and much of Downtown San Leandro’s most promising opportunity sites are developed. Downtown San Leandro currently offers the City’s strongest combination of multi-modal transit access, a walkable environment, and easy access to nearby shopping, services, and dining amenities. As a result, early demand for TOD housing in San Leandro is most likely to be captured in this area, while development in the BFSP area may be limited until possibly after Downtown’s development potential is mostly absorbed. Development in the BFSP area will also require high rents/sales prices and a larger property owner (or owners) to be interested in development.

If the market rents/sales prices are not high enough then complementary public investments can be used to bring the costs of development down, and consequently reduce necessary market rents/sales prices. The public sector can incentivize earlier development through a number of tools. Most critically, the BFSP area will require infrastructure upgrades to improve multimodal connections between places through upgraded and new roads, sidewalks, and pedestrian-oriented streetscape improvements.

3 See the “Demand Estimate Methodology Notes” at the end of this report for additional detail.

38 | CITY OF SAN LEANDRO BAY FAIR BART TOD

MARKET ANALYSIS

Figure 29: Housing Demand Estimates for Small Households

2015-2025 2025-2040 Net New Annual Avg Net New Annual Avg Market Area* Demand Market Area New Household Growth (ABAG) 30,690 3,069 47,070 3,138 Estimated Total Housing Unit Demand 32,305 3,231 49,547 3,303 Assumed Absorption of Planned and Proposed Pipeline 2,997 Housing Unit Demand Minus MA Pipeline 29,308 2,931 49,547 3,303 Housing Unit Demand from 1- and 2-Person Households 18,163 1,816 30,705 2,047

San Leandro's Capture of Market Area Demand 10% of 10% of 10% of 10% of High End Capture Rate Market Market Market Market Area Area Area Area

Housing Unit Demand 1,813 181 3,066 204 5.2% of 5.2% of 5.2% of 5.2% of Low End Capture Rate Market Market Market Market Area Area Area Area Housing Unit Demand 936 94 1,583 106

Current Planned and Proposed Residential Units in San Leandro 1,100 *Market Area refers to Oakland, Alameda, San Leandro, Union City, Hayward, San Lorenzo, Ashland, and Cherryland. Sources: American Community Survey 2009-2013; US Decennial Census, 2000; Longitudinal Employer Household Dynamics, 2013; ABAG, 2015; HUD SOCDS, 2015; CoStar, 2015; Strategic Economics, 2015

Implications for the BFSP Area The BFSP area cannot currently command rents and sales prices necessary to support development costs of Type V, higher-density, multi-story development on existing improved properties, but this situation is likely to improve in the mid- to long-term. Currently, BFSP area is a relatively weak market location for housing relative to other transit-oriented locations in major regional centers along the Fremont/Richmond BART line, including Downtown San Leandro. Even with somewhat lower land costs, developers still must contend with the same regional construction materials and labor costs. A high return on investment is particularly important if existing commercial properties are to be redeveloped. However, ongoing demand for housing near transit suggests that BFSP area will eventually have a stronger demand for market-rate housing as other station areas are built out. In the interim, lower- density townhouses may be feasible to build on lower-value sites farther from BART. However, the value of locations near BART suggests that sites closer to the station are unlikely to be developed with this use.

Additional housing will provide support for the existing retail. There was a strong consensus among local developers and brokers that additional housing development will be the best use in the BFSP area to provide support for existing retail. Housing is also the use that can best take best advantage of the accessibility BART offers to major regional job centers.

EXISTING CONDITIONS ANALYSIS| 39 MARKET ANALYSIS

Based on existing local market conditions in the BFSP area, input from brokers and developers, and lessons from other TOD projects at the South Hayward and Union City BART station areas, several short term actions could help to accelerate future housing development in the BFSP area. These actions are described below, but will also be examined in greater detail in a future phase of the BFSP process:

• Improve the BFSP area’s safety in order to improve its general perception. o The Bay Fair BART station and the surrounding area have a reputation as being unsafe. Investments that improve actual and perceived safety would improve the desirability of using the BART station and make living in the area more desirable. • Improve pedestrian connectivity between retail and the BART station. o The development of a TOD in the BFSP area will be an incremental process but, if the BFSP area is to transform into a TOD, connectivity needs to be improved such that the retail becomes an integrated anchor for new housing rather than an isolated island; public infrastructure investment can help lead the way. Improved access to retail and entertainment amenities can improve development feasibility by requiring less investment in internal project amenities by developers. • Implement parking management solutions that most efficiently use parking resources, potentially through sharing of spaces between uses. o The City should work with property owners to identify a long-term parking solution as development occurs, and identify options to make better use of existing parking. o For example, BART replacement parking at the South Hayward station was provided via a district-wide solution managed by a Joint Parking Authority. o Parking and transportation demand management strategies can also allow reduced residential parking ratios for developers. • Invest in improved basic infrastructure, as needed. o The introduction of high-density housing and potential new streets will require upgrades to stormwater infrastructure and possibly water, sewer, and gas connections. The public sector could assist in funding these improvements, either directly or by overseeing implementation of impact fees and local assessment districts. • Build high-quality affordable housing. o While market-rate housing is not yet financially feasible for developers, affordable housing may allow for more intense development to occur earlier, and through different funding mechanisms. This provides a base of residential activity from which market-rate development can grow, particularly if the housing is attractive, well-designed, and well-managed. However, development of affordable housing is still difficult to deliver and requires adequate funding availability and site availability.

40 | CITY OF SAN LEANDRO BAY FAIR BART TOD

5. RETAIL MARKET

Overview

This chapter examines the current health and future prospects of the BFSP area’s retail concentration. Findings were based on assessment of BFSP’s existing retail mix, sales performance (measured via sales tax revenues), regional demographic trends, and positioning of BFSP’s major shopping centers relative to the region. The findings discussed below are based on analysis of demographic and market data, sales tax data, and extensive interviews with local brokers and developers working in and around the BFSP area, San Leandro, and the Market Area.

The BFSP retail concentration was analyzed within the context of the entire Market Area (described in the Introduction). This area represents the larger regional area within which the BFSP area retail cluster can potentially compete against other centers for customers, given the location’s excellent regional accessibility. The Market Area should not be confused with the smaller “trade area” from which BFSP retail currently draws most of its customers.

Existing Supply Nearly 1 million square feet of retail space are located in the BFSP area’s three major shopping centers, comprising over 16 percent of citywide retail supply and 2.5 percent of Market Area retail supply (Figure 30 and Figure 31). Bayfair Center comprises the majority of retail in the BFSP area, estimated as 685,000 square feet of leasable retail space by data service CoStar (although the entirety of the center includes over 800,000 square feet, some of which is occupied by or being marketed to non-retail users). Bayfair Center is a regional mall currently serving a roughly 5-mile trade area, with major department store anchors, a multi-plex movie theater, and 4 comparison goods3F3F shopping. Fashion Faire Place, with anchors Pier 1 Imports and Dollar Tree, complements the offerings at Bayfair Center with additional regional-

4 “Comparison goods” refers to infrequently-purchased items for which consumers are likely to compare prices and assess quality before making purchases, such as apparel, electronics, and appliances. Comparison goods retailers typically cluster in large retail nodes. In contrast, “convenience goods” are day-to-day purchases such as groceries and personal care items.

MARKET ANALYSIS

serving destination retailers. Fairmont Square, anchored by local grocery chain Lucky Foods, consists of neighborhood retail primarily serving nearby local shoppers.

The BFSP area is a strong location for regional retail, given its location near three high-traffic freeways, along a heavily-trafficked state highway, and located adjacent to the BART station. While the BFSP retail cluster is not located immediately next to a freeway off-ramp, it is within close proximity of Interstates 880, 238, and 580 and located along the key north-south arterial route of E. 14th / State Route 185. The interstates provide both north-south and east-west access to the entire East Bay region, while E. 14th carries over 20,000 average annual daily trips directly adjacent to 5 the BFSP area.4F4F

Bayfair Center, as a regional mall, competes against other regional retail centers within the larger Market Area. Bayfair Center competes against centers throughout the I-880 corridor stretching from Oakland to Union City. Within the immediate area, Southland Mall in Hayward is the next closest comparable competing retail center. The map in Figure 33 shows the geographic relationship of the primary centers competing for customers within the regional Market Area. Each center serves a more localized trade area within the larger Market Area, based on unique tenant mix, format, and access. Stoneridge Shopping Center in Pleasanton is outside the Market Area, but draws customers from throughout the southern East Bay due to its larger size and unique upscale tenant offerings.

Retail space within a mile of the BFSP area has vacancy rates of less than five percent, lower than San Leandro, and slightly higher than Market Area, as seen in Figure 32. Average rents exceed those citywide in the Market Area. Retail within a mile of the BFSP area has a vacancy rate of 3.9 percent, while the City and the Market Area are at 4.7 and 3.3 percent, respectively. Moreover, average asking rents in the BFSP area are $1.87, higher than either the City or the Market Area. Brokers interviewed for this study noted that rents vary widely within the Market Area and the BFSP area, although well-located spaces adjacent to major anchors can attract rents from $2.50 to $3 per square foot per month (on a triple-net basis), or higher in the most ideal locations.

Older retail centers in the Market Area have relied on re-tenanting and reinvestment to remain competitive and respond to changing consumer preferences and retail formats. Many of the largest shopping centers in the Market Area – such as Southland Mall, Union Landing, and South Shore Center (in Alameda) – are over 40 years old, and have undergone significant renovations and re-tenanting to maintain their competitive edge. The shopping centers in the BFSP area have effectively deployed this strategy, with Bayfair Center having been recently renovated. The mix of tenants at Bayfair Center has successfully evolved over time in response to larger retail and Market Area trends favoring discount and mid-tier retailers, as reflected in Bayfair Center’s inclusion of relatively new tenants Target, Kohl’s, and DSW shoes.

5 Traffic Census Program, California Department of Transportation, 2014 counts.

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MARKET ANALYSIS

Figure 30: Major Regional Shopping Centers In the Market Area, 2015

Rentable Distance Building Area to Bayfair Year Name Center Type City Anchor Tenants (SF) Center* Built Alameda Landing Lifestyle Center Alameda Target 292,113 14.4 2013 Macy's, Kohl's, Target, Century Theatres, Bed Bath & Beyond, 685,384 Bayfair Center Regional Mall San Leandro PetSmart, DSW, Old Navy, Staples (retail only) 0.0 1957 Bay Street Emeryville Lifestyle Center Emeryville AMC Theatres, Barnes & Noble 391,832 16.6 2002 West Gate Shopping The Home Depot, Sports Center Power Center San Leandro Authority, Office Depot 410,518 5.1 1987 Target, Best Buy, The Home Depot, Pak N Save, Michaels, Sports East Bay Bridge Authority, OfficeMax, Pacific Sales, Center Power Center Emeryville Office Depot, Babies R Us 530,894 15.2 1981

Nordstrom Rack, Marshalls, Mens Marina Square Wearhouse, Gap, Talbots, Ann Shopping Center Outlet Center San Leandro Taylor Factory 167,089 4.1 1993 Safeway, Kohl's, Ross Dress for Less, Bed Bath & Beyond, T.J. Alameda South Shore Maxx, Walgreens, PETCO, Trader Center Regional Mall Alameda Joe's, OfficeMax, Old Navy 580,539 10.4 1953

Sears, Macy's, JCPenney, Sears Outlet, Ross Dress for Less, Rite Southland Mall Regional Mall Hayward Aid 1,285,256 4.5 1964 Walmart, Best Buy, Lowe's, Century Theatres, Lucky Stores, Babies R Us, OfficeMax, Sports Union Landing Power Center Union City Authority, Ana Furniture, Michaels 876,416 9.0 1970 *Driving distances are approximate and depend on the route taken. Source: CoStar, 2015; Google Maps, 2015; Strategic Economics, 2015.

Figure 31: Bay Fair Specific Plan Area Shopping Centers, 2015

Rentable Building Name Center Type City Anchor Tenants Area (SF) Year Built Macy's, Kohl's, Target, Century Theatres, Bed Bath & Beyond, Bayfair Center Regional Mall San Leandro PetSmart, Old Navy, Staples 685,384 1957 Ross Dress for Less, Michaels, Pier Fashion Faire Place Neighborhood Center San Leandro 1 Imports, Dollar Tree 94,255 1987 Fairmont Square Neighborhood Center San Leandro Lucky Supermarket 186,658 1979 Source: CoStar, 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 43 MARKET ANALYSIS

Figure 32: Current Retail Inventory (2nd Qtr 2015)

Rentable Average Building Area (Sq. Monthly Ft.) Vacancies Rents (Sq. Ft) % of Sq. Ft. Total 1 Mile Radius 2,672,902 126,742 3.9% $1.87 San Leandro 5,897,629 336,436 4.7% $1.58 Alameda 3,603,187 183,282 4.7% $2.31 Oakland 18,709,358 668,838 2.6% $2.01 Hayward 7,747,682 403,153 2.9% $1.36 Union City 1,914,319 61,922 3.0% $1.82 Market Area* 38,533,347 1,715,601 3.3% $1.79 *Market Area includes: Hayward, Oakland, Union City, San Lorenzo, San Leandro Rents provided on a triple-net basis (net of taxes, insurance, and maintenance) Source: CoStar, 2015; Strategic Economics, 2015.

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MARKET ANALYSIS

Figure 33: Regional Shopping Centers in the Market Area

EXISTING CONDITIONS ANALYSIS| 45 MARKET ANALYSIS

Figure 34: Neighborhood Shopping Centers in the Market Area

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MARKET ANALYSIS

Sales Performance BFSP area sales tax revenue is largely driven by sales at Department Stores, Apparel Stores, and Restaurants; the BFSP area comprises eight percent of citywide retail sales tax revenue. Department Stores account for almost 45 percent of the BFSP area sales tax revenue, while Apparel and Restaurants account for 14 and 12 percent, respectively (Figure 35). The high volume of department store and apparel sales reflect the BFSP’s role as a destination for regional comparison goods shopping.

Long-term declines in BFSP area department store sales (on an inflation-adjusted basis) are driving declines in comparison goods and overall BFSP area sales tax revenue. Inflation-adjusted sales tax revenue in the BFSP area’s regional-serving comparison goods store categories has gradually declined since a precipitous drop ended in 2009, with much of the decline driven by falling sales tax revenue from Department Stores. From 2009 to 2015, inflation-adjusted Department Store sales tax revenue dropped from just over $800,000 a quarter to less than $750,000 a quarter (Figure 37). Sales tax revenue from stores in other comparison goods categories fluctuated, but has remained somewhat flat over time.

Performance of the BFSP area’s stores in local-serving convenience goods categories has held steady and increased. Inflation-adjusted sales tax revenue from Grocery stores has steadily increased since 2013. Likewise, sales tax revenue from restaurants and auto-oriented uses such as service stations has held steady or increased in recent years (Figure 38).

Figure 35: Bay Fair Specific Plan Area Composition of Sales Tax Revenue, by Category, First Quarter 2015

50%

40%

30%

20%

10%

0% Misc. Retail Auto Related Apparel Grocery Stores Business Furniture/ Appliances Business to Restaurants Department

Source: Muni Services, 2015; City of San Leandro, 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS| 47 MARKET ANALYSIS

Figure 36: Bay Fair Specific Plan Area Sales Tax Revenue as a Percentage of Citywide, 2010 and 2014/15

12%

10%

8%

6% 2010 4% 2014/15 2%

0% Total Misc. Retail Auto Related Apparel Grocery Stores Business Furniture/ Appliances Business to Restaurants Department

Source: Muni Services, 2015; City of San Leandro, 2015; Strategic Economics, 2015.

Figure 37: Bay Fair Specific Plan Area Sales Tax Revenue, Comparison Goods Categories (2015 dollars)

$1,400,000 $350,000 $1,159,288 $1,200,000 $265,205 $300,000 $1,000,000 $250,000 $800,000 $200,000 $600,000 $150,000 $400,000 $100,000 $46,516 $200,000 $50,000 $0 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Department Apparel Furniture/Appliance

Source: Muni Services, 2015; City of San Leandro, 2015; Strategic Economics, 2015.

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MARKET ANALYSIS

Figure 38: Bay Fair Specific Plan Area Sales Tax Revenue, Local-Serving and Convenience Goods Sales (2015 dollars)

$350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1 Qtr 1

Grocery Misc Restaurant Auto-Related

Source: Muni Services, 2015; City of San Leandro, 2015; Strategic Economics, 2015.

Development Trends Few retail projects have been recently completed or are under construction in San Leandro or the Market Area, with development primarily consisting of small local- serving retail space built on the ground floor of mixed use projects along with new housing units. As shown in Figure 40, the only major planned and proposed retail project in the Market Area is on the “Kaiser North” property adjacent to San Leandro’s new Kaiser Medical Center. The Kaiser development, if built as currently proposed, would account for between 387,000 to 432,000 square feet of new retail in a lifestyle center format. However, while the project has completed extensive planning and environmental review, there are no indications that this project is currently moving forward. Eventual construction of retail at Kaiser North could potentially influence retail patterns in the BFSP area, depending on whether the new stores complement or compete with existing retailers. The lack of a new retail development pipeline is indicative of the limited population and income growth within the Market Area, and especially communities near the BFSP area. Local brokers and developers interviewed for this study viewed the Market Area’s existing retail concentrations as performing adequately, but opportunity for further expansion is limited without significant population growth or increased incomes. Changing customer preferences for new retail formats will impact the success of existing BFSP area retail. New development projects with modern retail formats – such as open-air “lifestyle” centers, and experience- and entertainment-focused environments – are becoming increasingly desirable. Bayfair Center and many of the other Market Area retail centers reflect their eras of construction, built as enclosed suburban shopping centers. However, retail trends have gradually shifted toward big box “power centers” (such as Union Landing) and, more recently, experience-focused “lifestyle-centers” (such as Bay Street) featuring an indoor-outdoor street environment, mixed uses, and/or greater emphasis on shopping, dining and activities. While the BFSP’s centers have re-tenanted and reconstructed in response to trends, a larger transformation may eventually be necessary in order to meet changing preferences – particularly since the Market Area’s growth potential is limited.

EXISTING CONDITIONS ANALYSIS| 49 MARKET ANALYSIS

Figure 39: Selected Retail Recent Development

Project Address City Developer Type Sq. Ft Stage Sonic 31187 Mission Blvd Hayward Cinos, Inc. Retail 1,761 Built 2010 520-552 W Tennyson Rd Hayward Retail 11,562 Built 2010 Affordable Apartments/ Station Center 34800 11th Street Union City MidPen Commercial space 8600 Built 2011 22425 Main St Hayward R. Zaballos & Sons, Inc. Retail 5,200 Built 2012 26250 Industrial Blvd Hayward SIMEON Commercial Properties Retail 1,838 Built 2013 City Sports Club 2401 Whipple Rd Hayward LBA Realty Retail 41,000 Built 2013 1191 B St Hayward Dharam Salwan Retail 5,000 Built 2014 25965 Industrial Blvd Hayward SIMEON Commercial Properties Retail 8,250 Built 2014 The Village 1550 East 14th Street San Leandro Innisfree Companies Retail Built 2014 Source: City of San Leandro, 2015; Interviews with local developers, 2015; CoStar, 2015; Strategic Economics, 2015.

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MARKET ANALYSIS

Figure 40: Selected Retail Planned and Proposed Development

Project Address City Developer Type Sq. Ft Stage Market-Rate Apartments, Live/Work Space, Approved; 34588 11th St. Union City Windflower Properties and Retail 3,000 scheduled 2017 The Phoenix 22301 Foothill Blvd Hayward Dollinger Properties 66,000 Proposed 2014 Market-Rate Townhouses Hollywood Bowl Mission Blvd and Industrial Parkway Hayward Valley Oak Partners and Retail 10,000 Proposed 2014 Office, Residential, Shoreline Mixed Use San Leandro Cal-Coast Development and Restaurants 21,000 Proposed in the EIR Kaiser Medical Center San Leandro Kaiser Mixed Use 387,000 Proposed in the EIR E 14th and Callan Ave San Leandro Mixed Use 15,000 Proposed Proposed; 2425 Whipple Rd Hayward LBA RIV-CO XXIV, LLC Retail 3,500 Expected 2015 Legacy Partners Commercial; Proposed; Eden Shores Blvd Hayward Eden Shores Associates, LLC Retail 20,000 Expected 2016 Proposed; Hesperian Blvd Hayward Legacy Partners Commercial Retail 30,680 Expected 2016 Proposed;Expected 25971 Mission Blvd Hayward CVS Caremark Corp. Retail 4,800 2016 Proposed; 31281 Wiegman Rd Hayward Che Chen Liu and Shu Fen Liu Retail 183,000 Expected 2016 Source: City of San Leandro, 2015; Interviews with local developers, 2015; CoStar, 2015; Strategic Economics, 2015.

EXISTING CONDITIONS ANALYSIS | 51

MARKET ANALYSIS

Study Area Retail Positioning Bayfair Center still enjoys excellent regional accessibility, but is competing against other centers with stronger freeway visibility and access. Although Bayfair Center is located at a key regional crossroads, its freeway access is not as strong as other existing and potential competitors located directly at exits.

Regional retail in the BFSP area must continue to evolve in response to changing preferences for retail formats such as open-air “lifestyle centers” and greater focus on entertainment and dining. Bayfair Center reflects an older model of an enclosed mall, as opposed to open-air, mixed-use lifestyle centers (such as Bay Street in Emeryville) and “power centers” comprised of big box stores (such as Union Landing in Union City). The lifestyle center format is not a guarantee of success, but it does reflect broader retail trends favoring a greater emphasis on “experiential” retail focused on entertainment, dining, and a vibrant public atmosphere.

Opportunities for major retail expansion in the entire Market Area are limited given the area’s largely built-out, slow-growth nature, declining incomes in the Market Area, and lower incomes in the immediate vicinity of the BFSP area. The Market Area’s population grew by only 2.8 percent between 2000 and the 2009-2013 period. The relatively slow growth of the largely built-out Market Area, declining inflation- adjusted incomes, and the location and format challenges of the BFSP area’s retail centers suggest that increases in retail demand are not likely to drive a major expansion of retail in the BFSP area. However, the Association of Bay Area Governments does project an increased household and population growth rate in the Market Area by 2040; based on existing countywide spending patterns, this growth could generate demand for an additional 4 million square feet of retail by 2040 in the entire Market Area.

Figure 41: Market Area Retail Demand Growth, Based on Household Growth

New Retail Demand (Sq. Ft.) 2015 to 2025 2025 to 2040 Market Area, Regional-Serving Retail Apparel 326,000 500,000 General Merchandise 972,000 1,492,000 Home Furnishings and Appliances 257,000 395,000 Building Materials 204,000 313,000 Total* 1,974,000 3,028,000 Market Area, Local-Serving Retail Food Stores 540,000 828,000 Eating and Drinking Places 523,000 801,000 Other Retail 496,000 761,000 Total* 1,559,000 2,391,000 *Totals may not match sum due to rounding Sources: ICSC, Office-Worker Retail Spending in a Digital Age, 2012; California State Board of Equalization, 2013; ABAG, 2012; Strategic Economics, 2015.

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MARKET ANALYSIS

Implications for the Study Area Successful reinvestments by BFSP area shopping owners has maintained the health of these centers; as a result, the revenue generated by existing retail uses in the BFSP area creates little incentive for property owners to undertake large-scale redevelopment of existing commercial space. Owners of the Plan Area’s major retail centers have undertaken significant effort and expense to retain or attract key anchor tenants and to generate satisfactory returns from existing uses. Unless redevelopment can be accomplished without sacrificing existing revenues, owners do not currently have strong financial incentives to redevelop existing retail space.

Over the long term, the BFSP area is unlikely to add large quantities of additional retail, and may instead need to eventually shift formats and reorient toward including more local-serving and dining and entertainment retail. Limited household growth and falling incomes – in both communities surrounding the BFSP area and the Market Area as a whole – suggest that a large-scale expansion of retail space is unlikely in the Market Area, and particularly in the BFSP area. Instead, the Market Area’s regional malls and shopping centers will continue to compete on their ability to meet customer preferences for location, format, and tenant mix. The BFSP area is likely to remain a strong regional retail hub for the foreseeable future, so long as Bayfair Center’s anchor tenants are in place. However, ongoing declines in inflation- adjusted sales in the BFSP area suggest that it may eventually need to undergo a reformatting and reorientation. In today’s market, this reorientation would be toward more local-serving and “experience-focused” retail; however, this could change if other retail formats become popular. Such a shift is more likely to occur if major anchor tenants are lost and/or a directly-competing retail center is built in a more favorable location.

The existing retail can serve as an anchor for additional higher-density housing in the BFSP area; that housing, in turn, can help support existing retail. As the BFSP area transforms into a TOD, the existing retail and new housing can serve as mutually supportive anchors. The shopping centers would provide convenient amenities for new residents. New residents, in turn, would generate demand both for the existing retail offerings as well as more restaurants and convenience retail. Total demand from new BFSP area residents would be small in comparison to demand from the entire Bayfair Center trade area, but their presence would lend a sense of vibrancy to new connections, public spaces, and retail nodes within the BFSP area. Housing can potentially be constructed without loss of existing space, such as at the “King Parcel” parking lot adjacent to Bayfair Center, or on Bayfair Center or BART parking lots (in conjunction with construction of replacement parking).

EXISTING CONDITIONS ANALYSIS | 53

6. OFFICE MARKET

Overview

This chapter examines the current state of the office market in the BFSP and its relationship to the City and Market Area (described in the Introduction) office demand, with an eye to potential future growth. The findings below are based on analysis of market data, recent development trends, and interviews with local brokers and developers. The chapter concludes with a discussion of implications for the BFSP area.

Existing Conditions Demand for office space is rapidly increasing in the Market Area, with increasing rental rates and decreasing vacancy rates. As office space in the region’s major employment centers like San Francisco and Silicon Valley become increasingly expensive, demand for office space in the Market Area has increased. Local brokers observe shrinking vacancy throughout the Market Area and increasing rents. However, over 70 percent of Market Area office space is located in Downtown Oakland (Figure 42).

San Leandro is a very limited but emerging office market centered between (and distant from) the more significant concentrations in Downtown Oakland and Fremont. San Leandro ‘s current office market is limited, with data service CoStar estimating that the City contains less than 6 percent of Market Area office space. Nearly the entire existing office inventory is generally lower-rent Class B or C space, often occupied by household-serving professional businesses. However, Downtown San Leandro is beginning to attract new office space, with the Class A/B Creekside Plaza, built in 2010, fully leased and undergoing expansion and the first phase of the San Leandro Tech Campus (described in detail in the next section) under construction (Figure 43 and Figure 44).

Typical office rents are low in San Leandro and the BFSP area, partly due to the lack of higher-quality office space; new products have commanded significantly higher rents, but are still well below attainable rents in major regional office centers. CoStar reports that average monthly rents for available office space in San Leandro are $1.72 per square foot on a full service gross basis. However, rents in San Leandro vary dramatically, from between $1.25 for Class C space up to $2.75 for newer Class A office space. In comparison, rents in Downtown Oakland average $2.15, and can be as high as $3.75 or $4.00 a foot for higher quality space. Nearly all buildings in or near the BFSP area are Class C office space (due to limited inventory, data on average asking

MARKET ANALYSIS

rents in this area are skewed by 52,000 square feet of potential office space in the largely vacant upper level of Bayfair Center, asking $2.25 per square foot).

The BFSP area a relatively unproven market for traditional and higher-quality office space, with most existing space located in smaller Class C office buildings. There are approximately 290,000 square feet of office space within a one-mile radius of the BFSP area – compared to 2.3 million square feet in the City as a whole and 37.8 million square feet in Market Area (Figure 42). This current office supply is predominantly located in older, Class C buildings, and tenants are often local-serving small professional businesses or medical businesses. The BFSP area also includes 52,000 square feet of vacant potential office space in Bayfair Center. In interviews with local brokers, much of current supply was considered insufficient or lacking in services. While Downtown San Leandro is gaining some momentum as an office market, the BFSP area remains unproven as an office market.

Figure 42: Current Office Inventory (2nd Qtr 2015)

Rentable Average Building Area Monthly (Sq. Ft.) Vacancies Rents (Sq. Ft) % of Sq. Ft. Total 1 Mile Radius of BFSP 287,278 62,802 20.9% n/a* San Leandro 2,228,913 204,674 7.2% $1.72 Alameda 4,168,323 890,681 15.8% $1.91 Oakland 27,192,781 2,353,131 7.8% $2.15 Hayward 3,470,293 835,474 22.2% $1.55 Union City 626,176 16,034 2.6% $1.54 Market Area** 37,777,198 4,300,958 9.9% $1.98 *Market Area includes: Hayward, Oakland, Union City, San Lorenzo, San Leandro **Asking rents are not available for the BFSP area since nearly all listed space is located within Bayfair Center, publicly listed at $2.25. Rents are provided on a full service gross basis Source: CoStar, 2015; Strategic Economics, 2015.

56 | CITY OF SAN LEANDRO BAY FAIR BART TOD

Development Trends Creekside Plaza and the under-construction Tech Campus in Downtown San Leandro are gradually building an initial base of high-quality, well-anchored office space in San Leandro. Within Downtown San Leandro, there are two large, new, high-quality office developments: Creekside Plaza’s 235,000 square feet of office space, and a planned 500,000 square feet at the new San Leandro Tech Campus (of which the first phase, totaling 132,000 square feet, is currently under construction). These developments form a new, emerging office concentration centered near Downtown San Leandro and the San Leandro BART station.

New office tenants in San Leandro are reportedly drawn to Downtown because of the area’s accessibility, relative affordability, amenities, and growing existing base of office businesses; most major tenants are drawn from within Alameda County and San Leandro itself. With its BART station and relatively affordable space, Downtown San Leandro is well positioned to capture office users that are being priced out of larger areas, as Market Area prices continue to rise and San Leandro’s office supply expands. Developers and brokers interviewed for this study reported that newer office space in Downtown San Leandro draws tenants seeking higher-quality, regionally- accessible space at a relatively low lease rate. Larger tenants are typically drawn from Alameda County and within San Leandro. Notably, both TriNet – which occupies much of Creekside Plaza – and OSIsoft – which will anchor the first phase of the San Leandro Tech Campus – were already San Leandro based companies seeking to expand; their interest in new space improved the viability of both developments by reducing the amount of speculative construction. Downtown San Leandro, with its budding office center and walkable infrastructure, is currently better positioned than the BFSP area to take advantage of market growth.

Lit San Leandro’s fiber optic loop – which connects the BFSP area – fulfills basic connectivity needs of office users, but is not likely to drive office development without complementary market location strengths. Brokers interviewed for this study noted that the Lit San Leandro loop fulfilled a basic expectation by office users that excellent high speed data access is available. While the fiber optic loop does not necessarily provide an edge over areas with large existing, well-served office clusters, it does provide an edge over smaller competing areas that do not offer high data speeds.

Outside of Downtown San Leandro, few other office projects are under development in nearby Market Area communities. Downtown San Leandro is on its way to creating a new office center; however, there are few other office projects under development in other secondary office centers of the Market Area (i.e., outside of Oakland) (Figure 43 and Figure 44). Nearby plans in South Hayward and Union City call for office development but, as yet, very little development has occurred, indicating the difficulty of cultivating a new office market from a limited base.

EXISTING CONDITIONS ANALYSIS | 57

MARKET ANALYSIS

Figure 43: Selected Planned and Proposed Office Development in San Leandro and Hayward

Square Project Address City Developer Type Feet Stage First phase San Leandro Tech under Campus 1333 Martinez San Leandro Westlake Urban Class A 500,000 construction Creekside Plaza San Leandro Blvd and Callan Expansion Ave San Leandro Innisfree Companies Class A 80,000 Proposed Office, Residential, and Proposed in the Shoreline Mixed Use San Leandro Cal-Coast Development Restaurants 250,000 EIR Eden Shores Business Eden Shores Associates I, Center Hesperian Blvd Hayward LLC Class B 542,165 Proposed Source: City of San Leandro, 2015; Interviews with local developers, 2015; CoStar, 2015; Strategic Economics, 2015.

Figure 44:Selected Recent Office Development in San Leandro and Hayward

Project Address City Developer Type Square Feet Stage Class Creekside Plaza San Leandro Blvd and Callan Ave San Leandro Innisfree Companies A 235,000 Completed 2010 Source: City of San Leandro, 2015; Interviews with local developers, 2015; Strategic Economics, 2015.

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APPENDIX B: MARKET ANALYSIS

Office Demand Based on projected job growth in office-based employment sectors, Strategic Economics estimates that the Market Area will experience demand growth for up to 10.1 million square feet of office space by 2040. The Association of Bay Area Governments projects that office based job growth in the Market Area will increase by 34,000 by 2040, as seen in Figure 45. This translates to demand for approximately 10.1 million additional square feet of office space. There are currently almost 2.4 million square feet of planned and proposed office projects in the Market Area, including almost 700,000 square feet in Downtown San Leandro which will absorb a portion of demand growth.

Given recent and planned development, San Leandro can expect to capture a larger share of new demand than in the past, potentially ranging between 500,000 and 925,000 square feet by 2040. San Leandro currently has only approximately 6 percent of all office space in the Market Area, and approximately 11 percent of all workers in largely office-based industries such as Finance and Insurance, Real Estate, Information, and professional services. However, Creekside Plaza (built in 2010), and the San Leandro Tech Campus demonstrate San Leandro’s recent success in attracting large users to high-quality space. These projects indicate that San Leandro may continue to capture more than its historic share of office space demand. Strategic Economics’ low estimate of demand assumes that San Leandro captures a share of Market Area demand growth equivalent to the City’s current share of office space, while the high estimate assumes that San Leandro captures a share of demand equivalent to its share 6 of workers in largely office-based industries. 5F5F

Currently planned and proposed projects in San Leandro could potentially absorb between 75 and 100 percent of this demand growth, with most development likely to occur in Downtown. Recent Downtown office development has shown promise for San Leandro as an office market. However, the nearly 700,000 square feet of office space planned and proposed in the City (including the San Leandro Tech Campus’ next two phases of development) will absorb the vast majority of San Leandro’s ability to capture future growth in office demand, even with high end demand estimates.

6 See the “Demand Estimate Methodology Notes” at the end of this report for additional detail.

EXISTING CONDITIONS ANALYSIS| 59

MARKET ANALYSIS

Figure 45: Office Demand Estimates

Total Average Annual 2015-2025 2025-2040 2015-2025 2025-2040 Market Area* Demand Total Job Growth (ABAG) 63,040 52,170 6,304 3,478 Job Growth in Office-Based Industries (ABAG) 17,090 16,795 1,709 1,120 Square Ft per Employee 300 300 300 300 Projected Office Demand Growth in Sq. Ft. 5,127,055 5,038,610 512,706 335,907 Assumed Absorption of MA Planned and Proposed Pipeline 1,059,648 706,432 105,965 47,095

San Leandro's Capture of Market Area Demand 5.9% of 5.9% of 5.9% of 5.9% of Low End Capture Rate Market Market Market Market Area Area Area Area

Office Space Demand (Sq. Ft.) 239,983 255,605 23,998 17,040

11% of 11% of 11% of 11% of High End Capture Rate Market Market Market Market Area Area Area Area

Office Space Demand (Sq. Ft.) 447,443 476,570 44,744 53,350

Current Planned and Proposed Office Space in San Leandro 698,000** *Market Area refers to Oakland, Alameda, San Leandro, Union City, Hayward, San Lorenzo, Ashland, and Cherryland. **Excludes the first phase of the under-construction Tech Campus. Sources: American Community Survey 2009-2013; US Decennial Census, 2000; Longitudinal Employer Household Dynamics, 2013; ABAG, 2015; HUD SOCDS, 2015; CoStar, 2015; Strategic Economics, 2015

Implications for the Study Area The BFSP area is an unlikely location for major office development in the short-term, given its lack of an established product and its distance from the region’s major concentrations of office space. While a large user could prove an exception to this conclusion, broad market trends indicate that the BFSP area is not well positioned to capture demand for office space. New office development in San Leandro will more likely be built in Downtown, where momentum is building for the creation of a new office cluster.

If office space in Downtown San Leandro is successful, the BFSP area could potentially capture some office demand over time. If Downtown San Leandro becomes a more significant office node and demand begins to exceed existing or potential supply, then some of this demand may potentially be captured in the BFSP area. At this point, the BFSP area would be able to leverage its access to BART, the Lit San Leandro fiber optic loop, and surrounding retail and entertainment amenities. BART may also have a long-term interest in cultivating office growth in order to balance rush hour ridership by encouraging “reverse-commuting” away from the region’s core.

The BFSP area would need an anchor or cluster of office uses to succeed as an office destination. Given the strength of other nearby office centers, and the lack of existing inventory in the BFSP area, a large single tenant would likely be required to spur

APPENDIX B: MARKET ANALYSIS development of an office market in the BFSP area. It is unlikely that a future developer would build speculative office space without an anchor tenant.

Potential does exist for BFSP to attract small, local-serving storefront offices. The above discussion is geared primarily to large-scale corporate office demand potential. However, BFSP’s transit access, convenience, and potential future TOD transformation does create potential to attract a limited increment of small, local-serving office space similar to San Leandro’s historical base. These types of users include accountants, tax preparers, small independent businesses, etc. Space for such users is likely to be accommodated within existing retail centers or as a secondary ground floor use in new buildings.

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MARKET ANALYSIS

Appendix: Demand Estimate Methodology

Housing Demand Estimate 1. Calculation of Market Area Demand. a. First, total new small household growth—households most likely to live in a TOD—for the Market Area (Oakland to Union City, and all areas in between) was estimated by applying a current share of small households to Association of Bay Area Governments (ABAG) projections of household growth. b. These were then converted into housing unit demand for the Market Area by assuming a vacancy rate of 5 percent to the small household growth estimates. c. Finally, current Market Area (minus San Leandro) pipeline of planned, proposed, and under construction projects was accounted for by subtracting from Market Area demand. Because San Leandro accounts for a large share of the total Market Area pipeline, it was applied later to localize its effects to San Leandro’s potential small housing unit absorption. 2. Calculation of Potential San Leandro Capture Rates. a. To derive San Leandro’s share of Market Area residential demand and create an upper and lower range of potential capture rates, two potential scenarios were tested: i. The low capture rate scenario was based on San Leandro’s share of recent (2010-2014) Market Area multi-family building permits, which is approximately 5.2 percent. This serves as a proxy for recent (and future) development trends. Additionally, it assumed that the majority of new multi-family development will be smaller unit sizes of 0-2 bedrooms, and therefore more likely to be occupied by smaller households of 1- to 2-persons. If San Leandro maintains this share of the projected new housing unit demand for small households, then it will capture approximately 5.2 percent of housing unit demand from smaller households. ii. The high capture rate scenario was based on San Leandro’s share of current small households in the Market Area. San Leandro’s current share of small households, according to the American Community Survey 5 Year Estimates 2009- 2013 is approximately 10 percent. If San Leandro merely maintains its current share of the Market Area small households, then its demand (in units) would be approximately 10 percent of projected growth. Hypothetically, these small households would be more likely to locate in higher density multi-family housing, though some of these households will still choose single family units. 3. Comparison of capture rates to current pipeline projects in San Leandro. a. Finally, net demand for new residential units was estimated by comparing the projected demand in each scenario to San Leandro’s current pipeline. San Leandro has several large projects planned or under construction, accounting for almost 1,400 new units, which may absorb a significant portion of the new small household multi- family demand for the coming years.

APPENDIX B: MARKET ANALYSIS

Office Demand Estimate 1. Calculation of Market Area Demand. a. First, total job growth and job growth in largely office-based industry sectors was estimated for the Market Area (Oakland to Union City, and all areas in between). i. Total new jobs were estimated by aggregating total new jobs in each individual community. Net new total jobs between 2015 - 2025 and 2025-2040 were calculated and then divided into average annual new jobs for each time period. ii. Total office-based jobs were estimated by aggregating total new Finance and Professional Services Jobs and Information Jobs. As ABAG includes Information as a subcategory to Other, a proportion of Other jobs were applied to Information, based on the share of total current jobs in Information. Net new office based jobs between 2015 - 2025 and 2025-2040 were calculated and then divided into average annual new jobs for each time period. b. Next, this Market Area demand was converted into square feet. i. An average of 300 square feet per employee was applied to each new job, to calculate approximate new demand of square feet of office space. c. Finally, current Market Area (minus San Leandro) pipeline of planned, proposed, and under construction projects was accounted for by subtracting from Market Area demand. Because San Leandro accounts for a large share of the total Market Area pipeline, its pipeline was applied later to localize its effects to San Leandro’s potential office space absorption. 2. Calculation of Potential San Leandro Capture Rates. a. To derive San Leandro’s share of Market Area office demand and create a range of comparison, two potential scenarios were tested: i. The low capture rate scenario was based on San Leandro’s share of current office inventory in the Market Area. San Leandro’s current share of office inventory, according to CoStar, is approximately 5.9 percent. If San Leandro merely maintains its current share of the Market Area office inventory, then its demand (in square feet) would be approximately 5.9 percent of projected growth. ii. The high capture rate scenario was based on San Leandro’s share of current Market Area office employees, which is approximately 11 percent. If San Leandro maintains this share of the projected new jobs, and office space demand at 300 sq. ft. per employee, then the office space demand would be approximately 11 percent of projected growth. 3. Comparison of capture rates to current pipeline projects in San Leandro. a. Finally, net demand for new office space was estimated by comparing the projected demand in each scenario to San Leandro’s current pipeline. San Leandro has several large projects planned or under construction, accounting for almost 700,000 square feet, which may absorb a significant portion of the new office demand.

EXISTING CONDITIONS ANALYSIS| 63