San Jose’s office market is still looking to regroup after the economic downturn that hammered the Silicon Valley technology sector. According to David Burroughs, vice president at Grubb & Ellis’s San Jose branch, the only office building currently under construction is Adobe System’s 275,000-square-foot building downtown, which is part of its corporate headquarters.

“With a vacancy rate of 22 percent as well as shadow space — space companies have leased but are currently not using — it is unlikely that there will be any speculative development soon [in San Jose],” he says. The only office development taking place is by owner-users like Adobe Systems that want to build to spec and keep their employees together at one location.

BEA Systems, Inc., a software maker, recently reached an initial agreement with the city of San Jose to develop a complex, capable of housing 8,400 workers, on a 42-acre parcel on North First St. The development could deliver as much as 2.8 million square feet for the company, which currently employs 1,000 employees in San Jose

According to Burroughs, there are no new office developers to the San Jose area and no major tenant is absorbing a majority of space. “Most of the tenants over 20,000 square feet choose to go into R&D space rather than office space,” he says.

As for major leases that have closed recently, Jeppesen Sanderson Inc. leased 26,300 square feet of space in the 343,500-square-foot Opus West building on East Santa Clara St. in downtown San Jose. The Boeing Co. subsidiary is vacating 17,000 square feet in the older Los Gatos building to move to the Class A tower. Covad Communications, moving its headquarters from Santa Clara, California, leased 86,196 square feet at the Rio Robles Technology Center. Data Sweep Inc. subleased 33,920 square feet at 55 Almaden Blvd. in San Jose from Agile Software Inc. Lastly, the Superior Court of Santa Clara County recently leased 25,728 square feet at 111 W. Saint John St. in San Jose.

Rental rates for Class A office space average $2.25 per square foot downtown and $2.10 per square foot in San Jose’s suburbs. The overall vacancy rate in San Jose is about 17 percent.

“Downtown owners are hoping that the move of tech companies like Jeppesen Sanderson to downtown is the start of a trend,” says Burroughs. “Sobrato Development Companies has a new 380,000-square-foot building for lease on Almaden Boulevard and is holding out for a single tenant to fill the structure.”

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