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OAKLAND, CA-Shorenstein Properties and MetLife Real Estate Investments have quietly put their $250-million 601 City Center development in stasis before going vertical. When it broke ground in September, the company said it had secured its construction loan and would construct the 23-story 500,000-square-foot addition to its Oakland City Center complex with or without tenants and compete it in late 2010. A company spokesperson now tells GlobeSt.com that site work will cease but marketing will continue and the development team will remain in place such that it can ramp up again quickly when enough space has been preleased.

Presumably not shocked by this news is Sid Ewing. Ten months ago, with one new office tower sitting empty, 601 City Center gearing up for its ground breaking and entitlements in place for a 300,000-square-foot building at 1100 Broadway, the Oakland office specialist with CB Richard Ellis told GlobeSt.com that the market was no longer able to support the new empty building–Brandywine’s Realty Trust’s 215,000-square-foot 2100 Franklin building–let alone projects that had not yet broken ground.

“Brandywine moved forward (without a tenant) because the property came with its acquisition of 2101 Webster, was ready for construction and the market was a little hotter than it was today; they started construction two years ago,” Ewing told GlobeSt.com in a story titled Office Developers Lining Up for Downtown Oakland . “I will be surprised if anybody else comes out of ground without a tenant.”

Part of the problem is apparently lease rates. Despite Brandywine’s project Ewing said lease rates are not high enough in the Oakland CBD to warrant new construction. With the best space in existing class A buildings leasing for between $2.65- and $2.85 per square-foot (full service), he said tenants may be reluctant to pay $3.25– to $3.50 per square foot for space at Brandywine’s new addition to the market.

2100 Franklin remained vacant through the rest of 2008, though in December Brandywine announced its first deal , a 38,000-square-foot lease by Cerexa Inc. The biotech firm, relocating from nearby Alameda, is scheduled to occupy the top two floors of the nine-story building early this year. Brandywine declined to disclose the negotiated lease rate. That same month, it closed on the sale of a 1.7-million-square-foot, five-property Oakland office portfolio to an affiliate of CIM Group for $412.5 million.

Shorenstein owns more than 3.5 million square feet of space in 10 buildings at its City Center complex located next to Oakland’s City Hall, making it one of the largest office landlords in Oakland. The complex is 95% leased. 601 City Center would be the first addition to Oakland City Center since 555 City Center opened in 2002.

Shortly after the ground breaking ceremony for 601 City Center, Shorenstein president Glenn Shannon was confident about moving forward with the project despite the economy. “It takes three to four years from entitlement to completion, so you almost never start and finish a project in the same leasing cycle,” Shannon told GlobeSt.com. “When I spoke at the ground breaking, 555 City Center was behind me; we started that in a strong market and completed it in the dot-com bust and it still leased up because it was a new, high-quality property in a great environment with great access to transportation that attracted people in a flight to quality.”

While Shannon is no longer trying to repeat the feat with 601 City Center, he continues to believe in the future of the Oakland market. “We’re not merchant builders, we build to own long term, and so we look for properties that will have durable advantages,” he told GlobeSt.com. “We continue to believe that City Center–being at the heart of the Bay Area economy, sitting on top of a BART station and at the intersection of major highways, and being [less expensive] than other Bay Area markets–is going to be good long-term.”

In competition for that elusive anchor tenant is SKS Investments, which has entitlements for a 300,000-square-foot building at 1100 Broadway, just a few blocks from 601 City Center. Further out on the horizon, Swig Co. is seeking entitlements for a two-tower, 1.3-million-square-foot addition to Kaiser Center. The project would replace two low-rise buildings at the 900,000-square-foot mixed-use complex in Oakland’s Lake Merritt submarket with 42-story and 34-story office towers totaling 780,000 square feet and 565,000 square feet, respectively.

The 12-million-square-foot Oakland CBD office market held up in the fourth quarter, posting approximately 74,000 square feet of positive net absorption, according to a fourth quarter market report by CB Richard Ellis. The submarket’s vacancy rate ended the year at 10.4%, up just 10 basis points, while its total availability rate came in at 12.6%. The vacancy and availability rates for the overall East Bay market were 12.8% and 15.4% respectively.

“It is expected that the trend of increased vacancy and availability will continue into the coming year as economic uncertainty acts a catalyst for downsizing and relocations,” states the report.

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