Amazon Web Services, one of the larger tenants in East Palo Alto's University Circle office complex, is leaving the city by July 1.
The cloud computing company is consolidating its University Circle office with other campuses in the Bay Area, according to Jeff Gronning, the chief investment officer of Columbia Property Trust, a real estate investment firm and majority owner of the property on University Circle. Gronning made the announcement in an investors call on Feb. 18.
Amazon Web Services, which is a subsidiary of Amazon.com Inc., has several locations in the region spanning from Sunnyvale to San Francisco.
The company's departure from the complex that also houses the Four Seasons Hotel Silicon Valley will leave vacant a 90,000-square-foot space, which according to the Silicon Valley Business Journal makes the company the second-largest tenant in the development next to the law firm, DLA Piper. The law firm renewed the lease for its 119,000-square-foot office in 2017, the Business Journal reported.
Jim Fleming, chief financial officer of Columbia Property Trust, added during the investors call that his firm believes it will lease the space again "at the same or better rates," but it will take some time to do so due to the COVID-19 pandemic.
"Given COVID, we're anticipating that this will take a few months, which will temporarily reduce cash flow in 2021," he said.
Amazon.com isn't making a full exit out of East Palo Alto. The company will still operate at 2100 University Ave., a 200,000-square-foot office development by The Sobrato Organization.
"Amazon is maintaining its lease at 2100 University Ave. and will maintain a workforce of more than 1,000 corporate and tech employees in East Palo Alto, which includes (Amazon Web Services) employees," Zachary Goldsztejn, Amazon Spokesperson, wrote in an email.
Amazon's presence in East Palo Alto has long been under the eyes of careful scrutiny from East Palo Alto residents and leaders. For some, the tech behemoth's entrance rang a death knell for the city's housing affordability, as many residents are low-income and the city's poverty rate sits at 13.5%.
But for others, especially city leaders looking to further develop East Palo Alto, the Amazon tenancy was a beacon, exemplifying that the city has the ability to compete with its wealthier neighbors such as Mountain View and Palo Alto in attracting businesses and, as a result, a healthy tax revenue.
The pandemic, however, poses a unique challenge for office development. With a large question mark still hanging over when companies will ask its employees to return to the office, along with the realization that employees can most likely do a mix of in-person and remote work, some East Palo Alto leaders are looking for developers that may have a different way to use the space and land available in mind.
"We are watching this closely but this is not unexpected to me," East Palo Alto City Council member Regina Wallace-Jones commented on a Facebook post that shared the news. "It is why I have asked all developers to have a plan to flip their spaces to something else in the event that demand for corporate office space declines."
During its tenancy, Amazon Web Services paid well below market-rate rent, Columbia Property Trust CEO Nelson Mills said during the call. Based on the numbers Gronning disclosed in the call, the Business Journal calculated that Amazon Web Services was paying about $6.58 a square foot a month, not including "utilities, property expenses and building services."