Square Feet

After spending nearly two years working to entitle 7 acres of commercial property in West San Jose for housing, Silverstone Properties came up a vote short in the city council. The council voted this past week 6-5 against the rezoning of the property from its current office/industrial use to residential.

The mayor and the city have recently taken an increasingly firm line against rezoning of commercial land to residential use. During the past several years, land all across the valley was being rezoned to residential at a fast clip as the residential market outperformed the commercial market. Land owners sought to take advantage of the hot housing market by converting lands to residential use to increase the value of their property.

Once land is converted from commercial use to housing, particularly for sale housing, it is very unlikely that it will be converted back to office or residential. For that reason, there is a need to preserve commercial lands where possible. This particular property though, located on South Monroe Street is a property which I personally believe should have gone housing. The site doesn’t have great access and visibility, and it is currently surrounded by a park and other residential housing units, making it a great residential site rather than an office or industrial site.

To balance commercial land preservation while providing adequate housing stock, the city should look instead to encourage higher density mixed-use developments (commercial+residential) nearby and along major arterials, public transportation lines, freeways, and other sites where traffic impacts are minimized. Some progress is being made in North San Jose, but there are other areas of the city which could benefit from this same approach. This is of course a simplification of a complex problem, but the point is that there is a way to balance housing requirements while preserving commercial lands, and the two uses need not always be at odds with each other.

Coming on the heels of its recent $150M purchase of the San Tomas Business park, NVIDIA is working to put the pieces in place to develop approximately 2,000,000 square feet of office and R&D space on the site. The park and an adjacent 11-acre piece consists of 475,000 square feet of office and R&D space spread across 10 buildings on 25 acres. The project sits directly across the street from NVIDIA’s existing headquarters campus, which it is leasing from Sobrato until 2012.

Harvest Properties, which sold the site to NVIDIA, previously had plans itself for developing 2,000,000 square feet of Class A office space. The project entailed half a dozen buildings and parking garages, the tallest of the planned buildings being six stories. As of last month, the Business Journal reported that nobody was willing to comment on the development plans, but we’ve learned that NVIDIA is in fact pursuing development of the site.

Update: This job posting on NVIDIA’s site confirms the project is in fact moving forward:

The French have selected Mountain View as one of the cities to inspire eco-friendly towns of the future. An article in the Mountain View Voice indicates that French official Jacques Attali has selected Mountain View as one of five cities representing the best role models in the world for this vision.

What is the vision?, eco-friendly villages of less than 50,000 people which embody social diversity, public transportation, open space, and a friendly business environment.

Interesting, but I doubt Mountain View’s business friendliness really had that much to do with Google’s ability to grow into the 500 lb. gorilla it is. They were simply growing at a time when others generally were not.

For seven years, vacancy and rental rates in San Francisco made it economically infeasible for developers to build new office buildings. With rents up, vacancy rates down, and large blocks of space hard to find, speculative building has returned to San Francisco.

There is currently approximately 2M square feet of office space under construction in San Francisco. Bay Area wide, that number is close to 10M.

Some of the projects in San Francisco under development include:

500,000 SF @ 555 Mission Street (Tishman Speyer)
300,000 SF @ 500 Terry Francois Blvd (Lowes Corp)
160,000 SF @ Owens Street (Alexandria)

We anticipate that top floors of view buildings will see strong tenant demand while lower floors will have more difficulty leasing as the price differentials between new construction and existing buildings are difficult to justify. Regardless, initial buildings coming online will likely benefit with the level of risk escalating for developers building subsequent buildings.