Amidst Surging Demand, 80,000 SQFT Industrial Project Nears Groundbreaking in San Jose

By Meghan Hall

Many investors and developers look towards the East Bay when it comes to producing industrial product due to cheaper land prices and larger available parcels. But one developer is looking towards San Jose, a submarket dominated by office inventory, for the development of its industrial product: Denver, Colo.-based EverWest Real Estate Investors. The firm, a wholly-owned subsidiary of GWL Realty Advisors, has proposed an 80,260 square foot industrial building and site improvements at 2829 Monterey Rd. in San Jose.

Development would take place on approximately 2.7 acres of land and was formerly part of a larger, 7.5-acre site, on which a self-storage facility was approved in 2017. The site is currently vacant. Project documents indicate that future uses of the development could be one or a combination of research and development, advanced manufacturing, assembly, testing, offices, warehousing and distribution. City documents also indicate that as of May 2019, the future occupant of the building is not yet known. However, the goal of the project, states the City, is to construct a development that would attract an advanced manufacturing-type tenant that generates high-wage jobs in the area.

The future Class A building will be concrete tilt-up construction and feature 32-foot clear heights, 54-foot by 60-foot bay spacing, eight dock-high loading doors, LED warehouse lighting and 2,000 amps of service. According to its website, EverWest acquired the asset on behalf of an institutional separate account.

The City has issued an Environmental Impact Report for the project, and construction is scheduled to start in mid-2019. However, before the project can break ground, EverWest must secure environmental clearance, a site development permit, a building permit and other works clearances. Build-out is expected to be completed in 13 months.

The project site is an urbanized area of San Jose, with a mix of mid-rise residential and industrial immediately surrounding the site. A UPRR rail line exists just to the south and a mix of one-story automotive repair shops reside to the northeast. The property was formerly occupied by Granite Construction, which conducted asphalt batching on the property. Although the area is developed, it is less dense than downtown San Jose, and north San Jose, where office and residential development has taken off in recent years.

However, like office and residential development, the creation of industrial projects throughout the Bay Area has also been spurred on by the region’s technology industry. According to Cushman and Wakefield’s First Quarter Silicon Valley Industrial Marketbeat, job growth increased by 2.2 percent during 2018. Industrial vacancy in Silicon Valley has fluctuated at 3.0 percent over the past several years; vacancy rates for warehouse and manufacturing product sat at around 4.4 and 2.4 percent at the end of the first quarter, respectively.

Currently, said Cushman and Wakefield, there is currently 3.7 million square feet of available industrial space on the market, up from three million during the fourth quarter of 2018. However, much of this product suffers from what Cushman and Wakefield calls “functional obsolescence” due to its age. While there is 3.3 million square feet of new industrial product scheduled for delivery in 2019, there were no construction deliveries during the first quarter. New construction is concentrated in Milpitas, Fremont and Newark, where there is 3.2 million square feet of speculative product under construction. However, Cushman and Wakefield predicts that these buildings will not remain empty long after delivery.

Interest in San Jose’s industrial market also remains strong, as the city had some of the largest industrial leases during the first quarter. Legacy Transportation renewed its lease for 194,000 square feet of warehouse space in San Jose, and Foxconn also renewed its 136,000 square foot lease. California Wine Transport also signed a renewal, staying at its 92,000 square foot warehouse in San Jose.

EverWest Real Estate is a full-service real estate investment management firm that evolved from Alliance Commercial Partners. In its investments, EverWest targets a variety of value-add, core-plus and development opportunities across the United States. The firm’s portfolio includes more than 70 properties, mostly office and industrial, ranging in size from 25,000 square feet to more than 650,000 square feet.

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