Uber Technologies Inc. will open a large office in Oakland, California taking all of the workspace in the refurbished Sears building. It will open in two years, according to a source with knowledge of the deal.
The deal gives Uber all 330,000 square feet of the building. Uber made the deal official Wednesday morning announcing it bought the building from Lane Partners, the building’s owner, for an undisclosed price.
Uber’s deal may ignite a real estate market in Oakland that hasn’t seen a new office building built in over a decade. Oakland has also been forgotten in the light of the region’s huge growth of $1 billion in technology companies. It could also give investors more confidence to finance the construction of thousands of residential units that developers want to build.
“Oakland just changed. Wow,” said Chris Foley, a land broker in San Francisco and Oakland who works for Polaris Pacific, said when reached by phone and told of the news.
The deal shows massive growth for Uber. The $50-billion-plus-ride-app company already has about a half-million square feet of space rented across three buildings on Market Street and another 423,000 square feet that will open in its new Mission Bay headquarters by 2017. The San Francisco-based company has been kicking the tires on Oakland this summer and meeting with developers about potential spaces.
Uber also has partial ownership in future Mission Bay buildings, though owning real estate is still unusual for such a young company.
The former Sears building recently covered up its rooftop logo with a sign designating it as the rebranded “Uptown Station,” and has room for 3,000 employees according to the building’s marketing website.
If Uber fills that space completely it would become Oakland’s largest employer that isn’t a government agency or medical center. It would also surpass the size of downtown offices rented by private companies like Clorox and Pandora. These two companies lease 275,000 square feet and 200,000 square feet respectively, according to the brokerage firm Cushman & Wakefield.
The deal is huge for Menlo Park-based developer Lane Partners, which bought the failing Sears building at 19th and roadway last year for $25 million and has been working on a $40 million gutting that will transform it into prime tech space. A San Francisco comparison for that would be Shorenstein Properties’ investment in an old furniture market that became Twitters’ global headquarters, and is now worth $900 million. It’s unclear whether Lane will stay onto the project as a fee developer until the renovation is completed.
Lane has shown its confidence in getting a deal done by wrapping up sites for a residential development around the Sears building. Rumors have been escalating about a potential lease lately as Lane apparently stopped marketing the building to new tenants.
Industry sources have said Lane was shopping the space to tenants for about $45 a square foot annually once your factor in operating expenses. This is 28% higher than the average price of downtown space in Oakland, according to the brokerage Avison Young.
The building sits on top of the 19th Street BART Station, adding to its lure for potential employers, who increasingly stress their employees’ need for access to public transit to avoid clogged bridges and highways. The building will also be packed with amenities like a rooftop strewn with picnic tables and fire pits for workers. About 50,000 square feet on the ground floor will have a large food hall and retail space. Gensler, who recently opened an office across the street from the project, is the architect for the renovation.
The building is the centerpiece of the Uptown neighborhood’s decade-long comeback. The neighborhood has recently seen the revitalization of landmarks like the Fox Theatre and new housing built by real estate giants and called Forest City.
Meanwhile, the city has had some of the fastest-rising residential rents in the country.
Major residential and hotel projects still sit in Oakland’s pipeline, and real estate insiders have reported that investors are still lukewarm about committing equity to Oakland projects. The presence of a globally known technology company, like Uber, will change that, Todd Vitzthu, a broker for Cushman & Wakefield, said last week.
“We’re 5 years into the (economic) cycle with continued rent and value growth – why haven’t we built yet? We’re just at the point to get capital support for project,” he said. “There’s a tremendous amount of anticipation on who will move into the old Sears building. If it’s a high-profile, marquee tenant, it’ll have a very positive effect across Oakland.”
The question now becomes: Will more technology companies follow?
Right now, there are no major spaces where technology companies can land. Oakland has two major office sites controlled by SKS Investment and Shorenstein Properties, but construction won’t start until they have committed tenants. Other land deals for potential office areas also being shopped.
The city should be a destination for startups who want to save money, said startup investor Chamath Palihapitiya at Social + Capital last week.
“It’s fine to fail,” Palihapitiya told attendees, according to TechCrunch. “But if you fail because you didn’t have the courage to move to Oakland and instead you burned 30% of your cash on Kind bars and exposed brick walls in the office, you’re a (freaking) moron.
So far Oakland has been successful in cultivating strong homegrown startups without huge venture funding. Design firms, law firms and other types of companies have also been trickling from San Francisco to Oakland.
The public policy think tank SPUR cautioned in a report earlier this month that Oakland can’t bank on a cascade of large companies coming across the bay.
“Downtown has about a dozen co-working spots and a half dozen or more distinct business incubators and accelerators. Future growth should build off this existing infrastructure,” read the report.