WESTERN SNAPSHOT, JUNE 2004

SAN JOSE RETAIL MARKET

Sean O’Carroll Senior Sales Associate Cornish & Carey Commercial

Despite recent economic woes in the area, San Jose’s retail sector has maintained positive momentum. “The retail market has remained strong even in the face of the high-tech downturn in Silicon Valley,” says Sean O’Carroll, senior sales associate at Cornish & Carey Commercial in Santa Clara, California. “The combination of relatively strong consumer economics and a shortage of supply have kept retail vacancy rates in San Jose at less than 5 percent.”

In fact, retail developers are reacting to the shortage of retail space by capitalizing on under-utilized space in San Jose’s industrial sector. The conversion of industrially zoned properties to retail space is a recurring practice, says O’Carroll. “The city of San Jose is looking closely at [the issue] because of the concern that changing too much industrial land to retail will limit the ability to accommodate job growth in the future,” he adds.

The proposed 360,000-square-foot San Jose Market Center at the intersection of Coleman Avenue and Taylor Street is an example of the conversion trend. Cousins Properties plans to change the industrial property adjacent to downtown into a power center project, which would be immediately accessible from both Highway 87 and Interstate 880. The center is scheduled to open fall 2005 and the proposed anchor is Target.

Another industrially zoned property being converted to retail is Pacific Commons in Fremont, California, just north of San Jose. The 700,000-square-foot power center, being developed by Catellus Development Company, will open this fall and will feature Kohl’s, Costco, Lowe’s Home Improvement Warehouse, Linens ‘n Things, Old Navy, Party America, Organized Living, Office Depot, Circuit City and In-N-Out Burger.

Plaza San Jose is a 190,000-square-foot retail conversion project being jointly developed by the San Jose Redevelopment Agency and Blake Hunt Ventures at Story and King roads in San Jose. Formerly a Home Base-anchored center, the property has been scraped to accommodate new anchors Target and Walgreens in an undeserved market on the east side of the city. The retail center will open in late 2005.

The average retail lease rate for new San Jose projects is $38 to $50 per square foot for shop space and $18 to $25 per square foot for box space. Kohl’s purchased the leases on two former K-Mart locations in San Jose. Kohl’s is under construction at McKee and Highway 680 and Blossom Hill Road and Santa Teresa Boulevard. In south San Jose, Westfield Shoppingtown Oakridge added 250,000 square feet of retail to its regional mall property located on Blossom Hill Road. New tenants at Westfield Shoppingtown Oakridge include Borders Books & Music, The Cheesecake Factory, Chicago Pizza and Target (under construction). Wal-Mart is occupying a former K-Mart location on Story Road in east San Jose.

O’Carroll says that another major trend in San Jose is the city’s push for developers to provide housing or office components with their retail offerings. “Downtown San Jose continues to add new housing which will attract new restaurants and retail,” he says. P.F Chang’s China Bistro and McCormick & Schmick’s Seafood Restaurant have recently opened in downtown San Jose.

Retailers new to the San Jose market include Lowe’s Home Improvement Warehouse, Kohl’s and DSW Shoe Warehouse. Cousins Properties, Catellus Development Company, Blake Hunt Ventures, Regency Centers and Shea Properties are the most active retail developers in San Jose. O’Carroll says the continued residential growth in south San Jose and the Coyote Valley makes that retail submarket one to watch in the future.

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