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PG&E to Sell San Francisco Headquarters, Move to Oakland

PG&E to Sell San Francisco Headquarters and Move to Oakland

(Bloomberg) -- PG&E Corp. said it plans to sell its iconic downtown San Francisco headquarters and relocate to Oakland, a move aimed at lowering costs after the California power giant exits bankruptcy.

PG&E, which has called San Francisco its home since the utility’s founding in 1905, will move in phases starting in 2022, the company said in a statement Monday. It plans to lease its new building at 300 Lakeside in Oakland, with the option to purchase the property from developer TMG Partners.

With the move, PG&E becomes one of the most high-profile companies to leave San Francisco for Oakland, a cheaper city located just across San Francisco Bay. The sale of its headquarters also allows the utility to profit off of investor interest in its longtime hometown, one of the tightest and most expensive U.S. office markets.

PG&E said any net gains realized from a sale would be passed on to customers, and a transaction wouldn’t occur until it exits bankruptcy. The company, which filed for Chapter 11 more than a year ago after its equipment was tied to deadly wildfires, is seeking to win court approval of a $59 billion restructuring plan by the end of this month.

“Our new Oakland headquarters will be significantly more cost-effective, is better suited to the needs of our business, and is a critical part of fulfilling our commitment to operate in a fiscally responsible way that will enable us to achieve our operational and safety goals,” Bill Smith, PG&E’s interim chief executive officer, said in the statement.

PG&E said TMG will upgrade its Oakland property at its own cost according to the company’s specifications, which will allow for a flexible office layout and new safety measures in the wake of the coronavirus pandemic. The location will also make commuting easier for the majority of its employees who already live in the East Bay, PG&E said. It plans to consolidate its two other East Bay offices into the new Oakland headquarters.

The utility’s 1.7 million-square-foot (158,000-square-meter) San Francisco complex was constructed between 1923 and 1925, according to its registration form for the National Register for Historic Places. It’s located in the South of Market neighborhood, an area that’s popular with technology companies.

One broker estimate last year implied the property could fetch more than $1 billion. Still, it’s unclear how the market has changed since then given the Covid-19 outbreak.

Demand in San Francisco by fast-growing tech firms, and local restrictions on building, have long pushed rental rates higher and buoyed the value of buildings. But the pandemic has made many companies reassess their needs with most of their employees working from home. Facebook Inc. and Twitter Inc. have said that many of their staff may permanently work remotely.

“Even if most workers continue to work full-time in the office, plausible projections for increased remote work should put a sizable dent in long-term demand” for office space, analysts from real estate research firm Green Street Advisors wrote in a report last month. “That is highly unwelcome for a sector that was already facing challenging fundamentals and lofty valuations.”

©2020 Bloomberg L.P.