San Jose Mayor Speaks on Office Market at Colliers Event

Colliers hosted its Trends 2023 event where the brokerage looked at where the office market stands currently and at expectations for the for rest of the year. One of the keynote speakers was new San Jose Mayor Matt Mahan.

The event started off explaining that the market is in a downward trend compared to where it was two years ago. San Francisco stood out as tracking the largest fall with a vacancy rate of 20.5 percent in 2022 compared to 8.6 percent in 2020. Silicon Valley had the second-largest increase from 6.6 percent to 10.6 percent, and the East Bay was next, going from 9.3 percent to 15 percent. The Peninsula was an outlier with having a lower vacancy in 2022 (5.8 percent) compared to 2020 (6.4 percent).

In the office building sales, the market is looking for someone to make the first move to jumpstart activity.

“While many investors hold investor capital in their books, investor confidence has decreased,” Steffen Kremmerer from Colliers, said . “As the CEO of Walker Dunlap said this week on their fourth quarter earnings calls, ‘the moment the dam breaks and somebody goes and makes a major stake saying they think the market has turned, the floodgates will open’.”

The first half of the year is expected to continue with this downward trend, but there are expectations for a bounceback in the second half. Some of the reasons Colliers is confident to see a bounce is that venture capital companies continue to stockpile capital while there isn’t much activity and there has been a steady increase in occupancy.

While there was a downtrend at the beginning of 2022, it is because it was coming off of a historically strong year in 2021. There was still a lot of activity compared to many recent years.

“The majority of those deals were front-loaded,” Steig Seaward from Colliers said. “Typically, we see a lot of (sales) activity in the fourth quarter, but this year was different. We saw a decline of 62 percent in the fourth quarter.”

One positive trend was that sublease activity was up year-to-year in the fourth quarter, with companies returning to office and working out what their schedules will look like moving forward.

Mahan spoke about San Jose’s “historically strong” industrial market that has a vacancy rate of 3 percent, and expects to see demand remain for research and development as well as advanced manufacturing. He also wants to push back on the high cost to do business in the state, and doesn’t “want us to become a more expensive place to do business.” The comeback will be driven by tech companies, according to Mahan.

“The reason why companies are growing here is because the San Jose metro area has the highest contraction of tech workers as an overall percentage base,” he said.

Mahan also said he was committed to getting people back in the office, with a goal to get people to work at least four days a week. Foot traffic has increased, and downtown San Jose is at 70 percent of what it was pre pandemic.

Along with getting employees back in the office, the city is looking to prioritize residential density development to have housing for the workforce. There also will be an emphasis on safety moving forward through a coordinated effort between private and public entities.

“My priority is to get back to basics,” Mahan said. “I want us to refocus after a period of expansion. … I want us to get back to basics: public safety, reducing homelessness, speeding up permitting, and making sure the city runs well from the perspective of core services.”

Mahan also spoke that he wasn’t surprised to hear the news that Google hit pause on its Downtown West project.

“We just saw companies go through a period of expansion and now they are focusing a little more on efficiency,” he said. “I don’t think this is a big shocking development. I think it’s natural that companies and economies go through massive expansion, then right-size a bit.”