SAN JOSE — The decision by two tenants to leave downtown San Jose could worsen illnesses already plaguing the urban core’s economy in the wake of the coronavirus.
Professional services titan PwC and its recently purchased technology company, Surfaceink, are set to leave downtown after PwC signed a lease for much of the space in a new office building in Santana Row, west of San Jose.
The prospect of tenant departures comes at a time when downtown San Jose is already grappling with office vacancy levels that have reached worrying heights.
“It’s going to increase the vacancy rate in downtown San Jose,” said David Taxin, a partner at Meacham Oppenheimer, a commercial real estate firm. “With the number of vacancies downtown, this won’t help the cause.”
At the end of 2023, downtown San Jose’s office availability rate reached an all-time high of 35.7%, according to a report from Savills, a commercial real estate company. Office availability measures the mix of empty office space offered directly by building owners and space offered by tenants as subleases.
In further evidence of the weakness of the real estate market in downtown San Jose, in the last four months two large office buildings were sold at a loss compared to their previous sales.
In December 2023, an office tower at 303 Almaden Boulevard was purchased for just under $23.8 million, 70% less than the price paid for the tower during its previous sale in 2017 for $80. 2 million dollars.
In February 2024, a two-tower office complex at North Market Street and West St, John Street was purchased for $34.2 million, a 77% drop from the $141.4 million paid in February 2024. 2019 for skyscrapers.
While the price drops are staggering, experts such as David Sandlin, executive vice president of Colliers, a commercial real estate company, point out that the newly established prices at least set a current value for downtown office buildings in San. Jose.
“We now know what a Class A building in San Jose will sell for,” Sandlin said in a previous interview with this news organization on the subject.
The 303 Almaden Tower was priced at $151 per square foot while the 111 Market Square Tower was priced at $105 per square foot. Some experts note that the 303 Almaden skyscraper is rated higher quality than the twin-tower office complex.
It’s also worth noting that the buyers of each of the office buildings are separate groups, both led by George Mersho, CEO of Morgan Hill-based retailer Shoe Palace.
PwC, following its decision to move to Santana Row, a mixed-use neighborhood in San Jose, will also move its new subsidiary, Surfaceink, to the same One Santana West office building near the corner of South Winchester Boulevard and Stevens. Boulevard du Ruisseau.
“The benefit of the PwC deal is that they stayed in San Jose,” said Bob Staedler, managing director of Silicon Valley Synergy, a land-use consulting firm. “With the amenities of Santana Row, it’s understandable that PwC would go there.”
Approximately 1,200 PwC employees will be assigned to the One Santana West office building. This decision is expected to take place in 2026.
Still, downtown San Jose seems more than capable of being a vibrant host for office tenants and conventions.
Nvidia’s recent AI convention, in addition to engaging talks and jam-packed events, was also the catalyst for a bustling crowd that flocked to the city center in search of meals, drinks or entertainment.
“The activation of downtown San Jose and the energy of downtown is what’s going to attract businesses with younger employees,” Staedler said. “Having a constant stream of events and activities such as jazz festivals, live performances and other exciting events is the way to attract businesses to downtown San Jose.”
PwC is expected to vacate 80,000 square feet in a downtown San Jose office tower, according to real estate experts. Surfaceink leased 7,000 square feet on Stockton Avenue, west of downtown.
“You might have a new AI company or a new software company that wants to move into an urban environment in PwC spaces,” Staedler said.
Political and municipal leaders will need to adjust their vision for downtown so that the city’s urban core can truly rebound.
“Gone are the outdated dreams of a Trader Joe’s or Safeway in the heart of downtown. It’s over,” Staedler said. “Downtown needs to focus on vibrancy. »
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