With the government’s official pandemic end earlier this year, it’s an open question why so many downtown San Jose restaurants and office spaces remain vacant. Some of them believe it’s the result of Covid. Others theorize that elevated rental costs are the culprit.
“There’s not a lot of foot traffic because the businesses that used to be in this area all work from home now,” barber Thom Abellana of Concept on First Street said. “We used to get a lot of business from most of the employees around here.”
Even downtown San Jose-based Zoom Video Communications Inc., in an ironic move this week, ordered employees back to work, and not via Zoom link.
Abellana mentioned that despite the scarcity of regular bypassers, there is almost always a line out of the door at their neighbor, Paper Plane. “Temple and San Jose Bar and Grill have lots of people waiting outside, especially later in the evening.”
Breakfast entrant Egghead on First Street is making a go of it, despite being sandwiched between vacant restaurant spaces, with Angelou’s Mexican promising to move in to the right of Egghead. “We’re definitely a little worried about what the cost of all these vacancies mean for us,” said employee Avai Nguyen. “I hope that we do end up lasting.”
Nguyen, a downtown San Jose resident for most of her life, said that she’s seen a lot of restaurants come and go from the area. “I feel like it was a lot more lively before Covid. That definitely made an impact,” she said.
A silver lining scenario suggests that more restaurants will fill the area as “coming soon” signs hang in some South First Street windows near East San Fernando. “There are a lot of vacancies in the area, but I’m excited that we have so many restaurants and businesses coming in,” said Rookies manager Bobby Mumerlyn. “It’s been tough, but it looks like it’s turning around now.”
Last week, Bay Area’s CBS News aired a broadcast that highlighted downtown San Jose’s “historical high” number of vacancies. According to Cushman & Wakefield, downtown San Jose experienced a vacancy rate of almost 30% during the second quarter of this year. “The problem is even more pronounced in the area near the airport,” said the report. “The vacancy rate is a jaw-dropping 42%.”
“Downtowns probably need to be saying, ‘Given our new realities, what should our strategy be to reshape this downtown – reinvent it, make it something completely different?’” Joint Venture Silicon Valley CEO Russell Hancock told CBS.
Speculation as to why Silicon Valley’s downtown lacks tenants and patrons range from remote work to rent prices to homelessness.
“It wasn’t just Covid that made people leave this area,” Nguyen said about the vacancies alongside Egghead. “The homelessness is getting out of hand around here, too.”
According to a 2023 Q2 report by the commercial real estate firm Avison Young, downtown San Jose currently has nearly 11.7 million square feet of rentable space. Approximately 2.2 million of that is in units currently in development.
High resident and commercial rental costs could also be scaring off potential renters. With Zillow averaging monthly apartment rents at $3,348 and Commercial Cafe citing a 2022 report on commercial office space pegging an average of $43.87, annually, per square foot.
“We need some tenants! This is a fundamental problem,” said Mark Ritchie, CEO of Ritchie Commercial Real Estate and Property Management Company. “There are so few transactions, but there’s no pressure on rents increasing. If anything, rents have gone down.”
Ritchie, who co-owns the building that houses restaurants Rookies and Mezcal, attributes the stress of little patronage to Covid and people continuing to work remotely. “It’s an extremely challenged market because the lunch business went away,” he said.
“These vacancy numbers have never happened in American history. It’s like a double, triple gut punch, with everyone working from home—and even those buildings that are 70% leased have only 60% of those tenants showing up to work. There’s just not enough people.”
“It’s very quiet and empty around here most of the day,” said Nora Goncalez, owner of Acapulco Jewelers on Post Street and the building it occupies. “We wouldn’t be able to afford the $6,000 per month if we didn’t own the building.”
“There are a lot more people moving into this area,” said Abellana. “A lot of them are from the tech industry and renting studios and one bedrooms that cost around $3,500.”
Despite waning interest, the San Jose City Council has been trying to resurrect the High-
Rise Incentive Program for the fifth time. This would approve housing projects 150-feet and higher in the downtown core area as well as in Downtown West.
“Eight projects representing 2,383 units are in the pipeline for the downtown core,” according to the San Jose Downtown Association. “Another 2,400 units are entitled in the downtown planned growth area.”
Those permits would need to be secured by June 30, 2025 to qualify for the program extension.
A video from Avison Young’s homepage noted that also during the second quarter of this year, remote job postings fell by 15.9%. “Silicon Valley employers have greatly scaled back on the amount of remote tech positions versus a year ago, signaling the shift to in-person work environments,” wrote the report.
The report went on to observe that March’s banking crisis “contributed to a temporary slowdown in office leasing activity,” and that 53.2 msf from 2023 was 41.6% below the quarterly average from 2000 to 2023’s first quarter.
However, with businesses limiting the number of remote jobs and new development plans in the works, there is an air of optimism that demand will coerce people back into work areas, according to the report.
“There are some success stories out there,” said O’Carroll of Econic Company. “The urban development guys seem to be out there looking for unique tenants, which speaks pretty well for downtown.”