OAKLAND, Calif. (AP) — Kaiser Permanente has canceled its $900 million headquarters project in Oakland, a major blow to the local economy, officials said Tuesday.

The health care giant had plans to build a 1.6 million-square-foot office tower that would have been Oakland’s biggest commercial project. But this week, the company told city officials the project was no longer happening.

Kaiser, Oakland’s largest private employer, would have consolidated 7,200 employees from seven East Bay offices into a new 29-story tower in downtown Oakland. Real estate experts said the move would free up substantial offices space for smaller tenants to occupy, leading to a boost in city employment. Now, Kaiser plans to stay in its existing offices, Mayor Libby Schaaf said.

“It’s a pivot for Kaiser, and one that makes sense for their organization and members at this time,” Schaaf said in a statement.

Kaiser Permanente didn’t have immediate comment. Lane Partners, a developer that planned to sell part of the project site to Kaiser, declined to comment.

City officials said the move was not related to disruptions due to the coronavirus, which led to protests last week by Kaiser nurses in San Francisco over safety standards. Kaiser said it is complying with government guidelines.

But it could be another sign that the Bay Area’s booming office market is weakening as companies look to cut costs.

Construction costs have soared amid a shortage of workers and tariffs on some building materials, making large developments like Kaiser’s project harder to finance and complete. Housing projects around the Bay Area have also been stalled by rising costs.

Kaiser has endured numerous challenges in the past year. Longtime CEO Bernard Tyson passed away in November, and 4,000 mental health workers held a five-day strike in December.

Kaiser’s project was expected to generate an estimated $23 million in one-time taxes and fees and another $15 million in annual taxes.

Kaiser owns three Oakland office buildings and another one in nearby Alameda.

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