Steadier Silicon Valley helps drum up tenants for new San Jose offices

SAN JOSE, Calif. — According to a top real estate CEO, a more stable Silicon Valley job market and economy have helped to attract potential tenants to a new, empty office building next to Santana Row in San Jose.

According to executives with Federal Realty Investment Trust, the principal owner and developer of Santana Row and the office building, there is enough interest that a tenant could soon lease space in the new San Jose office building known as One Santana West.

Donald Wood, CEO of Federal Realty Investment Trust, expressed optimism during a conference call with Wall Street analysts this week to discuss Federal Realty’s financial results for the April-through-June second quarter.

“I’m pretty confident that we will have some leasing success in the relatively near future,” Wood said during the conference call.

The tenant interest comes at a time when Silicon Valley’s economy and job market have reached a “stabilization,” as Wood put it on the conference call, in the aftermath of the coronavirus pandemic.

“Perhaps we’re getting to a point where things can start happening,” Wood said of tenants completing lease deals.

According to Federal Realty executives, tenant interest in One Santana West appears to be heightened as a result of the economic improvement in Silicon Valley.

“We are seeing more than our fair share of looks in the marketplace,” Jan Sweetnam, Chief Investment Officer at Federal Realty, said during the conference call.

Federal Realty is attempting to find multiple tenants for One Santana West, occupants who may prefer to take one or two floors in the office complex.

The real estate firm’s initial strategy was to look for a company that wanted to lease the entire One Santana West building, which is located at 3155 Olsen Drive and has 375,000 square feet.

“We are in some serious and, frankly, advanced negotiations with tenants who are interested in our space because it is on Santana Row,” Wood explained.

Wood also quickly cautioned that his optimism could be dashed and his predictions proved to be incorrect.

“I’ve been snakebitten a couple of times before,” Wood admitted.

One Santana West is across the street from Santana Row, an open-air mixed-use destination center with shops, restaurants, entertainment venues, housing, office buildings, and hotel facilities.

The nearby Santana Row amenities are the primary selling point that Federal Realty hopes to dangle in front of prospective tenants as they consider a possible lease that also means their employees will be working in a formal office again. “Everyone we talk to wants a carrot to bring their people back into the office, a place where they want to go back to work,” Sweetnam explained. “These are the kinds of tenants we’ve been talking to, and it’s been very positive.”

There are clear signs that the brutally high rate of Bay Area job losses from tech industry layoffs has finally begun to slow.

According to Beacon Economics’ analysis of official monthly labor reports from the state Employment Development Department, the Bay Area lost 14,100 tech jobs in the first half of 2023.

Those job losses were concentrated in the first three months of 2023, when technology firms shed a net total of 14,900 jobs.

During the April-June second quarter, tech firms added a small — but encouraging — 800 jobs as they raced to staff up in promising fields like artificial intelligence and electric vehicles.

Furthermore, a commercial real estate firm, JLL, predicts that the San Jose metro region, defined as Santa Clara County and San Benito County, will be a top-tier economic performer in the coming years.

“The forecast for job growth in the San Jose metro area is a cumulative total of 4.3% over the next five years,” said Alexander Quinn, director of research for JLL in Northern California.

Furthermore, JLL predicts that the South Bay economy, as measured by the region’s GDP, will grow by 14.8% over the next five years.

This would make the San Jose area “the fastest-growing metro by GDP of any major North American metro,” according to Quinn.

Federal Realty CEO Wood is convinced that positive changes have arrived in the South Bay commercial real estate market.

“It feels palpably different in Silicon Valley than it has in the last year or two,” said Wood.