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Mr. John J. Jermanis City of San Leandro May 31, 2000 Page 9 SEDWAV GROUP Real Estate and Urban Economics With competing priorities for direct and indirect City support at Bayfair Mall and downtown, such a subsidy is uncertain. . Ananchor for the center would increase the land area devoted to the retail use. The Marina's identified development sites are too small to accommodate a large anchored specialty center. . The City's own Economic Development Strategy and Work Program indicated that the local demographics are "not attractive to high-end specialty retailers." Sedway Group strongly concurs with this assessment. . The Bay Area's other prominent waterfront retail center, Jack London Square, presents some level of competition due to its proximity. Even so, Jack London Square continues to struggle after many years of public investment. (For example, the Port of Oakland built a parking garage for the center's key anchor, Yoshi's World Class Jazz House.) In fact, part of Jack London Square is currently the subject of a second major redevelopment effort. Based on the above, Sedway Group believes that there is little support for a specialty retail center at the Marina. There may be potential for ancillary retail as part of another use, but a stand~alone center would not have sufficient market support. Office' The overall Interstate 80/880 office market has been improving steadily over the past few years due to local and regional economic growth. In the last year or so, the market has also benefited from spillover growth from the San Francisco and Peninsula, both of which have very little available space and consequently very high rents. The market is dominated by Oakland, which contains nearly half the market inventory in its downtown and outlying areas. Emeryville and Alameda also are substantial submarkets, each with about 13 percent of the inventory. In terms of performance, Emeryville is the most dynamic submarket, successfully attracting "new economy" companies due to its proximity to San Francisco, vibrant mixed-use community, and inventory of older brick buildings. New office construction is very active in this city and asking rates are the highest in the corridor at over $3:25 per square foot per month. "San Leandro is the smallest submarket in the corridor, with 630,000 square feet of space, or 2.5 percent of the market inventory. Although the vacancy rate in San Leandro is very low, at about 3.0 percent, average asking rents are also low, at about $1.25 per square foot per month. City representatives report an increasing level of interest from companies with immediate space needs, primarily for areas proximate to BART. However, this is believed to be the result of the overall tight market conditions. (The current vacancy rate in the corridor is 4.0 percent.) The City is presently working on a new Class A office building across the street from the San Leandro BART station. This building will total 180,000 square feet and will be anchored by two long-term local companies. The rent, approximately $2.25 per square foot per month, is admittedly high relative to most San Leandro buildings. With respect to the Marina, Sedway Group believes there are three key factors that diminish its attractiveness for office development: 1) The overall low rental rates in the city (which increase the difficulty of charging a rent sufficiently high to generate positive cash flow - including paying ground rent); 2) The Marina's inferior access and distance from BART and major freeways; and