Health tech companies leaving Mission Bay for downtown Oakland, citing lower rent

After a decade as neighbors in San Francisco’s pricey Mission Bay, the migration of the California Institute for Regenerative Medicine and physicians’ group Brown & Toland to downtown Oakland is fueling hopes that the city can capture even more Mission Bay expats.

Oakland, already home to health giants like Kaiser Permanente and household products maker Clorox Co., offers a more attractive price points with easy access to transit, according to the companies making the move. The East Bay beckons to tenants forced out by the rapid evolution of Mission Bay from a warehouse-scattered wasteland to a hot spot for tech startups like car service company Uber, which plans to site its headquarters in Mission Bay (and has also set its sights on a second office in downtown Oakland in 2017).

Both CIRM, the state-funded stem cell research agency, and Brown & Toland, which provides services and tools like electronic health records to 1,500 independent Bay Area doctors, cite cost as a key factor in their moves. CIRM was created by voter proposition in 2004 and aggressively courted by several California cities, but was lured to San Francisco by the offer of a decade of free rent across from the newly built Giants stadium, said agency spokesman Kevin McCormack.

“We took it, and now those 10 years are up,” McCormack said. “The neighborhood has gone from something that was in development to something that’s now one of the hottest markets in the country, and a little out of our price range.”

More than a little, in fact. CIRM’s projected San Francisco rent was more than double its Oakland tab for little more square footage. Now the agency will pay about $695,000 a year for its new home—17,000 square feet in the office tower at 1999 Harrison Street—less than half the $1.5 million its Mission Bay offices will command, McCormack said.

Brown & Toland’s new home will be right above the 12^th Street BART station, with easy access to bus lines and freeways. Spokesman Richard Angeloni wouldn’t share details of the company’s lease of 60,000 square feet in the Clorox building at 1221 Broadway, but he said the move would help the company save significantly on administrative costs.

If downtown Oakland represents a next-best option for two tenants wedded to the Bay Area, their reps say it’s good one. In addition to the price point, McCormack said the new CIRM headquarters will be centrally located within the Bay Area and close to public transit.

The same was true for Brown & Toland. “We wanted to be near a major transportation hub, to make it easier for employees to commute,” Angeloni said.

Their enthusiasm translates to about 330 new jobs in Oakland, according to the spokesmen. Mark Sawicki, the city’s director of economic and workforce development, said the city is actively trying to grow develop its health sciences sector even further. His office is in the midst of outlining a new economic strategy, and has solicited input from biotech and medical professionals on how the city could woo them better. But whether the arrival of CIRM and Brown & Toland heralds the start of success on that front isn’t clear.

The East Bay is seeing a run on its available office space by healthcare providers looking for sites for their administrative staffs, said Kevin Myersieck, vice president in charge of the Oakland office of commercial real estate firm Colliers International. Early in 2014, Stanford Health Care and UCSF Medical Center signed big leases for medical office space in Emeryville, and a subsidiary of healthcare giant McKesson Corporation inked a deal to occupy 50,000 square feet in a Powell Street office building there in February.

Those moves—and Brown & Toland’s—make sense when you consider that Oakland is already home to Alta Bates and Kaiser medical centers, which are also the city’s top private employers, according to Myersieck. “Clearly healthcare is a big part of our economic environment,” he said. “Medical offices want to be where their constituents are,” so there’s a tendency for players within the industry to collocate.

When it comes to biotech, however—the realm of CIRM and so many Mission Bay tenants—Oakland is lagging behind its neighbors. “It’s hard to put bioscience-related uses in an urban environment,” Myersieck said, which was precisely why Mission Bay looked so attractive to so many in the industry a decade ago, when the area was still in its early stages of redevelopment.

Which is not to say that Oakland isn’t going to try to pull in those getting priced out of San Francisco. Biotech is growing in the East Bay, said Sawicki. It’s mostly centered in Emeryville and Berkeley, but “Oakland would like to, and is to some extent, participating in that as well.”

First, though, the city has to get past a supply-and-demand paradox, he said. Its two big new health-related tenants have taken some of the last remaining leases with major contiguous square footage. “The market’s not quite there for rents to justify new construction, but we’re out of space for large tenants,” Sawicki said. “It’s kind of a bind.”

It’s hard to say where the tipping point is, but with existing space getting saturated, new development may be the next step, he said. “With San Francisco continuing to go up, Oakland rents continuing to go up,” Sawicki said, “the buildings are going to start coming out of the ground sooner rather than later.”