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“People can and have made a lot of money in downtown,” said Mike Grado, a senior vice president with CBRE Inc. in its downtown San Jose office. “The smart investors buy at the bottom of the market.”[contextly_sidebar id=”580f1a5a3e8c5da7ef7fc984788b9450″]Joseph Horwedel, director of city planning, building and code enforcement, said city officials have been speaking with Boston Properties about their land’s entitlements and the city’s desire to see them changed. The city wants offices or a hotel and better interaction with the Guadalupe River than what was proposed, Horwedel said.
The paved Guadalupe River trail system, which backs up to the site, is evolving into a commuter and recreation tool, connecting downtown to housing and other work centers including the San Jose International Airport and North San Jose.
“[The property] is a big piece of downtown because a lot of the formerly entitled office sites are becoming residential,” Grado said.
Under agreement with the former San Jose Redevelopment Agency, Boston Properties said in June 2000 it wanted to develop 863,000 square feet of offices in three towers on the site. The city has amended the contract four times to give the landlord more time to start construction. In 2011, the site-development permit expired, and Boston must now get a new one, Horwedel said.
The media and public have focused on the tech frenzy in Palo Alto and San Francisco’s South of Market neighborhood since recovery began in 2010, but downtown San Jose has experienced renaissance, too, said David Buchholz, a senior vice president with commercial property company Colliers International in its San Jose office, which overlooks downtown’s Diridon train and transit station. “There is a huge flow of young kids that come off that train every day,” he said. A shuttle, called the Dash, makes a loop of downtown from Diridon, running extra loops during high-demand periods.
“The real game-changer for downtown is Caltrain, but even on the [Interstate] 280 corridor, we are almost a reverse commute,” he said.
More technology companies—without which downtown San Jose is unlikely ever to truly thrive—have migrated in, including Move Inc., a NASDAQ-traded operator of real estate Web sites previously located in Campbell. Move took more than 32,000 square feet at 10 Almaden. Malwarebytes Corp. took 22,000 square feet at the same building, relocating from South San Jose, also at the end of last year.
The city still expects downtown to support one of its largest workplace concentrations. Its new master land-use plan for the next 27 years predicts the city’s job count will more than double to nearly 840,000, adding 470,000 jobs in the next three decades. Of that total, the city expects 10 percent, or 48,500 new jobs, to go downtown; 100,000 jobs, or 21 percent, in North San Jose; and 50,000 in Coyote Valley, near the city’s southern limits.
Logically downtown should benefit as office vacancy tumbles and rents rise in the West Valley, including Cupertino, Campbell and Santa Clara, forcing tenants to look south, brokers said. Yet, downtown has none of the roughly 35,000-square-foot floor plates that technology tenants want based on efficiency and management standards, Grado said, and offices near the airport are cheaper than downtown because parking is free, creating a nearby competitor. Still, Grado says that he believes with time that downtown will become a tech center in its own right.
Scott Daugherty, who specializes in corporate advisory and tenant services for Colliers, is unconvinced. While tenant touring may be rising downtown, he does not see lease volume picking up. Moreover, he is not persuaded by the logic that downtown will prosper as overflow tenant demand moves down the Peninsula: “A strategy based on the hope that the other markets will run out of space is not compelling,” he observes. “I do not foresee any net increase in occupancy downtown [for the next 24 months], and I don’t think the tech tenants are ready to come.”
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