SAN JOSE — Downtown San Jose, buoyed by plans for a game-changing Google village, a gleaming new Adobe tower, and intense interest from two mega-developers, has arrived at the cusp of a dramatic transformation.
The Bay Area’s largest city can now be a top-notch performer measured by much more than its status as the only municipality in Northern California with a population of 1 million or more people.
“The stars are aligning for downtown San Jose,” San Jose Mayor Sam Liccardo said in an interview. “They are aligning around public sector infrastructure investment and private sector investment.”
San Jose’s downtown is dwarfed in size by the downtowns in Oakland and San Francisco when measured by square footage. Yet more towers have begun to sprout lately, including multiple residential highrises and two office towers, one being constructed by tech titan Adobe and another by veteran developer Jay Paul Co. Many more highrises are in the works.
Transit links are plentiful, with a train hub at the Diridon Station that connects to Caltrain, Amtrak, ACE Train, Capitol Corridor, and light rail. Two BART stops, including one at Diridon Station, are planned, and a high-speed rail line might also zoom into downtown someday.
Years ago, San Jose soared past San Francisco in population, but despite that claim to fame, San Jose consistently lingers in the tower-high prestige shadows cast by San Francisco.
A population boom ushered in by decades of sprawl and annexations, a proclamation of San Jose as “The Capital of Silicon Valley,” the headquarters of Adobe, better weather, lower office rents and a more liveable city, all weren’t enough for San Jose’s downtown to be deemed a major urban core with everything that other lively downtowns can boast.
But in late 2016, the purchase of an old bakery building near the train station, followed by a string of purchases of other unassuming properties in the same area, became the prologue to a potentially stunning transformation of the western edges of downtown.
One of the world’s most famous companies — search titan Google — was behind the purchase of scores of properties needed for a transit-oriented neighborhood of offices, homes, hotel facilities, shops, restaurants, cultural centers and open spaces now known as Downtown West where the tech giant could employ 25,000 people.
“News of the demise of the downtown in America has been greatly exaggerated, and has been particularly exaggerated in downtown San Jose,” Mayor Liccardo said.
Google’s involvement in such a high-profile way has, in turn, unleashed a modern-day Gold Rush by a host of developers, large and small, in the city’s urban core.
“It’s San Jose’s turn now,” said Gary Dillabough, a principal executive with developer Urban Community. “If we do our job correctly and create the right environment in San Jose, the downtown is going to really take off.”
Still, the path to success could be tricky, according to some property experts.
Chief among the obstacles: Rents for prime office buildings in downtown San Jose haven’t topped the benchmark of $4.25 a square foot a month. Experts believe rents would have to be more in the range of $5.25 to $5.50 a square foot to generate enough leasing income to justify the cost of construction of brand-new offices.
Another potential problem: The economy could tumble again as part of a normal upswing and downturn cycle that has nothing to do with the coronavirus or other extraordinary events, which would cause tenant demand to fade.
But for now, the South Bay city’s modest skyline and relatively plentiful surface parking lots and under-utilized sites may be among the factors that have attracted the attention of a unique mega-developer.
Westbank is a real estate firm that concentrates its endeavors in only a few cities rather than the patten often exhibited by global developers that have projects in every market in a country or a continent. Westbank, which has teamed up with Dillabough, is now focusing on downtown San Jose.
“What interests me in San Jose is that there is a canvas where we can make a meaningful impact relatively quickly,” said Ian Gillespie, Westbank’s chief executive officer.
Canada-based Westbank also prefers to launch an in-depth commitment to a city, rather than build one project and head to the next market. Besides San Jose, Westbank’s focus has been on the Canadian cities of Vancouver and Toronto, Seattle, and in Japan.
“This is not a one-off with a few projects,” said Andrew Jacobson, who is heading up Westbank’s San Jose initiative. “We will have a presence over the long term. We put 150% effort into everything we do. We go deep into a market.”
Similarly, Google seeks to produce a major positive difference for San Jose as it creates a transit-oriented neighborhood.
“We have sophisticated players making multi-billion-dollar bets on downtown San Jose’s future,” Mayor Liccardo said.
Despite the push toward remote work encouraged by the pandemic, experts believe downtowns remain in vogue and office centers will be the primary place where employees congregate and work.
“The office is no longer just a place where you have a computer,” said Shawn Kellenberger, an executive managing director with Newmark, a commercial real estate firm. “You have to create offices in a place that draws employees.”
Increasingly, downtown San Jose is becoming a magnet for that new kind of workplace.
“The office has to be in a place that has energy, grit, amenities, public transportation, and vibe,” Kellenberger said. “Downtown San Jose has that now.”
Besides the global players such as Westbank and Jay Paul, and tech titans Adobe and Google, local players such as the Sobrato Organization, KT Urban, DiNapoli Cos., Urban Catalyst and Dillabough’s Urban Community, have jumped into the downtown market.
“The momentum is starting to build on itself,” said Shawn Milligan, a partner with KT Urban, which has proposed the development of a pair of 20-story office towers on the southern edges of the downtown near Interstate 280. “You are starting to see some critical mass in the downtown.”
