Silicon Valley Shopping Hubs Looking to Expand in A Robust Retail Market

Silicon Valley Shopping Hubs, South Bay, San Jose, DTZ, Santa Clara County, Federal Realty, Westfield Corp, Santana Row, Bloomingdales, Valley Fair
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Santana Row in San Jose

By Neil Gonzales

Two neighboring regional shopping hubs in the South Bay are eyeing a major expansion as the area’s retail market surges.

The booming economy, employment growth, high personal incomes and population density continue to put the San Jose area “at the top of many retailer expansion lists,” commercial real estate services firm DTZ said in its 2014 fourth quarter summary report for the Santa Clara County retail market.

[contextly_sidebar id=”FcFLA95mNHjIzdFzOSokB15yav5V8DtP”]In this robust environment, the upscale outdoor shopping district Santana Row and the large indoor mall Westfield Valley Fair—both at Stevens Creek and South Winchester boulevards along the San Jose-Santa Clara border—are looking to increase their retail capacity.

Santana Row owner Federal Realty, an equity real estate investment trust based in Maryland, seeks to add not only 55,641 square feet for shopping but also 510,000 square feet for offices, according to a draft environmental impact report from the city of San Jose.

The proposal also includes the demolition of three apartment buildings on Dudley Avenue that would lead to a transfer of 47 units to a future residential development elsewhere in Santana Row; an increase in rooms from 214 to 220 at the existing Hotel Valencia; and the construction of a five-level parking garage.

Federal Realty is already increasing its commercial offerings with the construction of 500 Santana Row, a 230,000-square-foot office building targeted for a technology tenant.

“Santana Row is one of the top retail opportunities in the nation,” said Nanci Klein, San Jose’s assistant director of economic development. Its expansion “is leveraging the existence of Westfield Valley Fair. People come to Santana Row and can walk across the street to Valley Fair, and as Valley Fair builds out, there will be incredibly high-end amenities all in one area. Companies and jobs want to be around a great amount of amenities.”

Valley Fair’s owner, Australia-based mall operator Westfield Corp., envisions a $600 million investment highlighted by the projected 2017 opening of a new 150,000-square-foot, three-level flagship Bloomingdale’s department store.

“The addition of Bloomingdale’s at Westfield Valley Fair is an indication of the strong support for this location’s vitality and its emergence as one of the best merchandised retail properties in the United States,” Greg Miles, Westfield’s U.S. chief operating officer, said in a February news release.

The Valley Fair project would also feature a ShowPlace Icon multiscreen movie theater with state-of-the-art cinematic technology, fine dining and other modern comforts.

Construction on Bloomingdale’s and the cinema is expected to start in 2016, but a new 2,000-space parking garage on North Monroe Street should be ready for this year’s holiday shopping season. This garage would include a digital navigation system that directs drivers to all available spaces, a dedicated bicycle parking section and charging stations for electric vehicles.

The decision to expand “was based on growth in the market, growth in jobs and income, customer demand and retailers’ interest in being at Valley Fair,” said Scot Vallee, vice president of development for the mall. “In addition, we feel the need to evolve with the customer, add better parking and more amenities, and diversify our offering to better serve the customer and retailer.”

The Valley Fair expansion would follow the center’s 2013 debut of its Luxury Collection program showcasing prestigious brands such as Prada, Miu Miu and David Yurman. The center also opened a modern dining terrace. Another upcoming enhancement will be a dining area with open-air pedestrian promenades and outdoor lounges.

While many indoor malls across the country are struggling or even closing, Valley Fair is bucking the trend.

“You can’t beat Valley Fair for what they’ve built, the collection of stores and the range of tenants,” Klein said. “The expansion will keep it as one of the premier shopping areas in the nation.”

The market outlook seems to support an expansion at Santana Row and Valley Fair.

Shopping center vacancy in Santa Clara County stood at 4.7 percent by the end of 2014, down from 5.9 percent at the close of the previous year, according to the DTZ report.

“Though we see the construction pipeline growing significantly in 2015, we continue to track robust tenant demand and expect vacancy levels over the next year to fall even as deliveries begin to pick up closer to 2016,” the report said. “Tenant demand continues to be driven by national chains in search of premium space.”

The average asking rent in Santa Clara during the last quarter of 2014 was $28.08 per square foot—up 5.7 percent year-over-year, according to DTZ.

“However, we should note that this metric only measures currently available space on the market,” DTZ said. “Many of the new projects in the development pipeline have both anchor and inline tenant commitments in place before they even move dirt. We know of premium small shop space in brand new centers leasing for $72 per square foot or more.”

Photo by Laura Kudritzki

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