Silicon Valley Continues to Adapt to a Post-COVID Economy

SAN JOSE—A flurry of activity marked the beginning of the holiday season for Cupertino-based developer Hunter Properties. At a sale price of $275 million, Hunter Properties recently disposed of Phase I of Coleman Highline, a 1.75 million-square-foot mixed-use campus that will total eight office buildings, four amenity buildings, a hotel and retail space. Blackstone Real Estate Income Trust purchased Phase I of the project, comprising two office buildings totaling approximately 360,000 square feet that are fully leased to Roku for its world headquarters, an amenities building and a parking structure. Roku Inc. leased nearly 800,000 square feet of the project for its new corporate headquarters.

Also at Coleman Highline, Hunter Properties signed a construction contract for all of the tenant improvements for Verizon. The contract with Devcon Construction Inc. is anticipated to take 12 months and will allow Verizon to take possession of the property in the fourth quarter of 2021. The Verizon tech hub will support more than 3,000 employees and include a 2,250-square-foot welcome pavilion and more than 45,000 square feet of workplace amenities such as a fitness center, a cafe and a marketplace.

Verizon Media will occupy 640,000 of the total 1.75 million square feet that comprise Coleman Highline campus.

The Coleman Highline project is being built in phases and will include 115,000 square feet of amenities and retail space, including a public market and hotel with 175 rooms adjacent to nearby Earthquakes Stadium.

At Hunter Properties’ Gateway Crossings, a mixed-use transit-oriented development directly adjacent to Coleman Highline, the firm executed a long-term ground lease with Vancouver, WA-based Holland Partner Group to build 725 apartments. This lease includes the entire Phase 1 of the project and all of the offsite improvements required by the city, including a new signalized intersection at the Costco entrance on Brokaw Road. This lease marks the launch of a transit village next to the San Jose International Airport and the Santa Clara Transit Center that is currently served by Caltrain, Altamont Corridor Express and Valley Transit Authority, and will be adjacent to the future site of the new southern terminus BART station. When built out, Gateway Crossings will offer 1,565 homes in addition to a hotel with 225 rooms, two parks with 2.5 acres of public space and 45,000 square feet of retail.

“We’re especially excited about beginning work on Phase 1 of Gateway Crossings,” Deke Hunter, CEO of Hunter Properties, tells GlobeSt.com. “To have the opportunity to create a new transit village so close to public transit and employment is a privilege for us. These first 725 apartments are the beginning of what we envision to be a dynamic community where residents will be able to work, shop and play where they live.”

At the CityLine Sunnyvale project, a joint venture with Sares Regis Group of Northern California, Hunter Properties recently completed Phase I of its retail plan with the opening of a 52,000-square-foot Whole Foods Market and 52,000-square-foot AMC Sunnyvale 12 theater. The approved master plan for the project calls for a buildout of 792 residences and 653,000 square feet of office above 182,000 square feet of ground-level retail, while 198 new apartments and hundreds of thousands of square feet of leased retail space have already been delivered across CityLine Sunnyvale’s 36 acres. An additional 75 residences and retail tenant improvements remain under construction.

At Evergreen Plaza in San Jose, a 152,000-square-foot Costco Business Center warehouse opened on October 30. The warehouse is part of an 80-acre community being developed by Hunter Properties and Arcadia Development that includes 250 homes, 405,000 square feet of retail, a retail paseo, a 40,000-square-foot health center, a 14-acre softball athletic complex and pocket parks.

“It is hard to convey how much work and energy went into each and every one of these deals,” says  Hunter. “To have them all finalized in 48 hours is a combination of serendipity and commitment. Our staff, financial partners, city and county staff, contractors and tenants have been stellar in assisting our team bring these tremendous accomplishments to fruition.”

Silicon Valley’s commercial property markets are continuing to adapt to a post-COVID-19 economy. For the third consecutive quarter, occupancy losses amounted to 2.1 million square feet and more than 4.5 million square feet year-to-date, wiping out all occupancy gains in 2019, according to a Colliers report.

The bulk of the negative net absorption can be ascribed to the R&D sector, which led in occupancy losses with 1.9 million square feet. Roughly 25% of these occupancy losses stem from renovation projects, which are temporary in nature and signal confidence in future demand. Despite the continued upward trajectory in vacancy, gross absorption (non-renewal leasing and user-sale activity) rebounded to 4.1 million square feet, up 64.5% from second quarter 2020 but down 16.5% year-over-year, says Colliers.