Silicon Valley Retail Space is Aging Out
Market Park San Jose, the $2.5 billion 120-acre mixed-use development, is rapidly taking shape to fill the retail void and will be the largest transit-oriented development in Silicon Valley when completed.
NORTH SAN JOSE—With most of the region’s retail product of the class-B or -C variety and very few construction deliveries in the wings, one project is poised to tackle this dearth head on. Adjacent to the soon-to-open Berryessa BART station, Market Park San Jose will be the largest transit-oriented development in Silicon Valley when completed.
This $2.5 billion 120-acre mixed-use development is rapidly taking shape as part of a North San Jose public-private partnership. Single-family homes, townhomes and apartments are already in place. In fact, some 3,600 homes and multifamily units are already built or planned. Phase II will feature up to 2,635 multifamily residential units including apartments and condos.
Phase II will also feature office space, with additional retail and residential space. There will be five office towers ranging from six to 10 stories. The 1.5 million total square footage will range from 198,000 square feet to 336,000 square feet of office space, with 2,700 parking spaces on site.
Neighborhood parks, walking/bicycling trails and greenbelt areas have been set aside including two parks with play spaces. And South Bay trails bisect the community for joggers and cyclists.
BART will connect to Market Park from San Francisco or Oakland without changing trains. In addition, the VTA transit center will have buses going to downtown San Jose.
Retail, restaurants and commercial services are being incorporated into the mixed-use community. One such retailer is Safeway, which will anchor a 100,000-square-foot retail center in the North Village of Market Park San Jose. Construction of the retail center is anticipated to commence in the fall 2019, with the next-generation Safeway store expected to open to shoppers in 2020.
Complementing the full-service 65,000-square-foot Safeway store, the North Village’s Market Place shopping center will include a drugstore, financial institutions, and various restaurants and service businesses. The center’s design was envisioned by Kenneth Rodrigues + Partners.
“Market Park is an ideal location for a new Safeway,” said Brad Street, president of Safeway Northern California. “We are excited to be part of this neighborhood and create new jobs in the community.”
Project management and office leasing are being led by Borelli Investment Company, while The Schoennauer Company is handling permitting for Market Park.
“The retail market is very strong for the right product type such as grocery and pharmacy-anchored shopping centers,” Ralph N. Borelli, chairman, Borelli Investment Co., tells GlobeSt.com. “The balance of our project will be filled with a bank branch and then quality quick-serve restaurants. We will most likely be substantially pre-leased prior to construction.”
Silicon Valley’s retail vacancy rate increased slightly to 3.9% in the second quarter of 2018, up 20 basis points from 3.7% in the first quarter. However, this is still below the 4.6% rate of one year ago, according to a report from Cushman & Wakefield.
The current rate translates to 1.5 million square feet of vacant retail space, an increase from 1.4 million square feet in the first quarter. Most of the available space, however, was class-B or -C product.
Santa Clara recorded the lowest vacancy rate in the region at 1.9%, followed by Palo Alto/Mountain View/Los Altos with 2.6% vacancy rate. Sunnyvale/Cupertino had an uptick in its vacancy rate from 2.8% last quarter to 3% in the second quarter, mainly due to two sublease stores totaling 9,000 square feet coming to market. San Jose/Campbell/Los Gatos, Milpitas and Morgan Hill/Gilroy recorded 4.3%, 4.4% and 4.9% vacancy rates, respectively.
With almost no new construction deliveries, the increase in vacancy translates to 87,000 square feet of move-outs in the second quarter. The San Jose/Campbell/Los Gatos submarket had the greatest volume of negative absorption at negative 125,000 square feet. One significant closure was Sears at Westfield Oakridge in South San Jose, part of the 250 Kmart and Sears US stores closure.
Santa Clara, Morgan Hill/Gilroy and Palo Alto, Mountain View/Los Altos recorded positive absorption of 53,000 square feet, 22,000 square feet and 16,000 square feet, respectively.