The office market in Oakland, California, already reeling from a stew of pandemic-related challenges, is slated to lose one of its largest corporate tenants now that Kaiser Permanente is preparing to "significantly reduce" its presence in the city.
The healthcare giant, one of Oakland's largest employers, plans to slash its presence in the Ordway Building at 1 Kaiser Plaza, throwing the downtown tower into "imminent default" as it faces the impending loss of its anchor tenant. The company “will significantly reduce its space," according to a building loan servicer note, meaning the property now faces "insufficient cash flow" after being transferred to special servicing earlier this year.
Kaiser, which leases more than 366,250 square feet in the property, has been headquartered in the 28-story building since the early 1970s. It isn't clear how much space the company expects to cut, but its downsizing move comes on the heels of its decision to shift about 10% of its Oakland workforce to one of its offices elsewhere in the East Bay area.
“The Ordway Building at 1 Kaiser Plaza in Oakland continues to serve as Kaiser Permanente’s national headquarters," a spokesperson said in a statement to CoStar News. "We have a standard practice of not commenting on rumors or speculation related to real estate transactions."
Any impending loss would be a major blow to the downtown property in which Kaiser leases nearly 70%. The company's current term is set to expire in February 2027, but it has an agreement with the landlord — an affiliate of Los Angeles-based CIM Group — to reduce its space by as much as 140,000 square feet without having to pay an early termination fee.
CIM declined to comment on the status of the building's financial health or Kaiser's tenancy.
While the greater Bay Area has struggled to find its post-pandemic footing, Oakland has been particularly hard hit by the impacts of remote work, tenant downsizings and evaporated demand. Absorption, or the net change in occupancy measured by the amount of space occupied versus vacated, fell to its lowest level in 2023 in about 25 years, according to CoStar data, with tenants collectively handing back upward of 940,000 square feet more than they leased.
Of the few leases that are being signed, many of them are for significantly smaller amounts of space, doing little to remedy Oakland's more than 20% vacancy rate, the highest level in more than a quarter century, according to the data.
The influx of empty office space has exacerbated the city's financial outlook as it faces a roughly $93 million budget shortfall by the end of the fiscal year in June 2025.
Kaiser has made a number of real estate moves since the beginning of the year as it continues to adapt its local office portfolio.
The company in September closed a nearly $14.5 million deal with a multifamily developer for the healthcare giant's Oakland office tower at 1950 Franklin St. as well as a neighboring parking garage. That disposition came on the heels of a separate sale in which Kaiser sold an office property at 2000 Broadway for $25.5 million to the Bay Area Rapid Transit system.