In her annual report to the City Council’s Community & Economic Development Committee on June 27, 2022, OEDCA Deputy Director Blage Zelalich acknowledged that the past twelve months have continued to be a struggle for Downtown as the lingering effects of the COVID-19 pandemic persist. As many of Downtown’s workers have still not returned to a full five-day in-office schedule, their absence is felt by restaurants, bars and other retailers.  Add to that the rising cost of goods, supply chain issues, and difficulty hiring and retaining workers, and the businesses Downtown have only partially recovered.   

The level of activity on Downtown streets has picked up over the past 12 months but remains nowhere near that of the activity before March 2020.  The industries that drove the Downtown economy – commercial offices, conventions, hotel business, bars and nightclubs, arts and cultural offerings, and events at the SAP Arena – limp toward recovery at varying rates.   

Two clear indicators of the effect of the pandemic on the Downtown landscape are sales tax collection and parking data.  When comparing 2020 and 2021 sales tax collections, the overall drop in citywide collections is a mere one percent; however, the decline in collections within the Downtown Growth Area are still 38.5 percent below pre-COVID levels.  Additionally, when looking at the day-to-day metric of on-street and parking garage utilization rates and revenue collections, occupancy and revenue numbers have only recovered 50 to 75 percent of what they were pre-pandemic. 

The Numbers 

Downtown is home to approximately 3,000 businesses, with the average age of a business being just less than 11 years.  Of these, 100 large businesses have a headcount of more than 35, accounting for 68% of all jobs in the area.  There are also about 1,350 small businesses Downtown with 2 to 35 employees. 

Commercial real estate sales volume has declined dramatically in 2022, with only two major commercial sales in the first two quarters: The Pavilion building was sold in December 2021 to Texas-based Hines ($59.6M) and Westin San José was sold in January 2022 to Khanna Enterprises (overall deal value of $62.3M -$45M for hotel and land). 

During the pandemic, Downtown has averaged office leasing activity of roughly 70,000 square feet per quarter. In the two years prior to the pandemic, the average was roughly 230,000 square feet per quarter.  

The Downtown vacancy rate at the end of the first quarter of 2022 stood at 19.4 percent. That is up from 16.7 percent in the first quarter of 2021, and 12.8 percent, prior to the onset of the COVID-19 pandemic. However, asking rents have remained relatively stable as landlords seek to maintain market stability.  Properties were asking an average of $4.36 per square foot per month in Q1 2022, close to the $4.42 rate a year earlier.  

Three notable leases this past year were Poly, Raymond James Financial and crypto currency exchange Okcoin, taking 73,000 square feet in the city center. And just last month, Hillbrook School in Los Gatos announced that they would be establishing their new high school campus to the St. James Park neighborhood, occupying the 1894 Mohr building and the Armory. 

Commercial Development 

The impact of the COVID-19 pandemic appears to have some effect on Downtown’s long-term future as only 2.4 million square feet of office space was under planning review at the time of this report, down from 5.2 million in last year’s report.  The City approved entitlements for 4.4 million square feet of office, down from 5.1 million square feet of office in Zelalich’s last report.   

Commercial development under construction includes Adobe’s fourth tower, as well as Boston Properties’ Platform 16.  Resuming construction in February, Platform 16 includes 1.1 million square feet of commercial space.  Also now under construction is Westbank’s Parc Habitat project on Park Ave., which includes the 60K square feet expansion of the Tech Interactive. 

Construction is currently underway on 2.6 million square feet of office space and 113,000 square feet of retail space – approximately 850K of this space is Jay Paul Company’s 200 Park Ave project. 

Key projects contributing to the 4.4M square feet in entitlements this year are: Boston Properties’ and KT Urban developments at Almaden Blvd. and Woz Way; and Westbank's Arbor project in the North San Pedro area.   

Creative Office Rehabs 

Jay Paul Company’s One West Santa Clara and Divco West’s 2 W. Santa Clara were completed at the corner of First and Santa Clara Streets since last year’s report.  On the other two corners of First and Santa Clara, Bauen Capital has completed interior demolition at 15 E. Santa Clara and the Bank of Italy refurbishment will resume in the coming months. 

Urban Catalyst’s conversion of the former Camera 12 Cinemas building into creative office space along the Paseo de San Antonio is well underway. Three out of the four groundfloor spaces in the project have announced leases – miniature golf, axe-throwing and restaurant. Hopefully these announcements will make leasing of the 65K square feet of office above more enticing. 

Urban Living 

To realize its true potential as an active and vibrant urban core, Downtown must attract significantly more residents and provide housing at varying income levels. Never was this more evident than during the pandemic, when residents stayed in their neighborhood for meals and the fulfillment of daily needs and services.   

There are approximately 23,000 residents living within the boundaries of the Downtown Growth Area.  The median household income in the area is $113,332 compared to $117,324 for the City overall. 

Since July 2021, 1,522 residential units have been completed. This total includes 188 West St. James in San Pedro Square, Hanover Diridon, and Miro across the

 street from City Hall.  Sixty-six percent of the Miro development’s east tower is currently leased and 105 units

 in the project’s west tower are earmarked for WhyHotel by Placemakr.  

Still under construction are 130 units in the Firestone project in Downtown’s SoFA District (scheduled for completion later this year) as well as the 87-unit affordable housing project Arya at 500 Almaden Blvd. 

This time-lapse sequence provides a dramatic look at how the Miro project progressed from dramatic de-watering that started well before COVID, through the pandemic to the current leasing of units and installation of ground-floor retail.    

Shopping & Dining 

While Downtown continues to build toward commercial and residential densities that will support more shopping activity, Downtown already offers substantial dining options and the general outlook of restaurateurs in the core is cautiously optimistic.  Although weekday lunch business continues to lag significantly, evening/weekend business for many establishments is approaching pre-pandemic levels.   

The SJ Al Fresco initiative, enabling businesses to extend their operations outdoors, continues to give much-needed assistance to Downtown restaurants as many customers are still hesitant to eat indoors. At its height, more than 30 Downtown businesses participated in the initiative.  Staff is working to transition all of the businesses with temporary al fresco operations to permanent ones. 

In FY 2021-22, seven out of 36 Storefronts Assistance Grants were awarded to Downtown businesses, totaling $75,000. 

Arts & Entertainment  

Under the stewardship of the Office of Cultural Affairs’ Public Art Program, Downtown was enhanced by two new permanent art installations over the year – Sonic Runway and San José Walls. 

Sonic Runway, the light-art-sound installation returned to City Hall Plaza in November.  

In partnership with the Guadalupe River Park Conservancy and San José Walls, ten new mural installations by local artists along the Guadalupe River Trail were completed. 

One of the three art installations completed by the San Jose Downtown Association includes a revamp of the Hella Gardens vacant storefronts installations along Market, Santa Clara and Second Streets.  

Coming soon is Westbank’s Serpentine Event Pavilion in the SoFA District. Opening in September, Serpentine  is scheduled to host 300 events over six to eight months. 

The Convention Center and Team San Jose-managed theaters welcomed events and patrons back, bringing over $30 million in direct visitor spending to Downtown businesses – a significant first step back in the long road to recovery. 

Public Realm 

The Downtown PBID was renewed again for ten years on June 14, with property owners representing 88.7% of the assessed value of the district voting to assess themselves for enhanced services.  Renewal of the district includes expansion into Downtown West, along East Santa Clara Street, and into Downtown’s North San Pedro area, increased Groundwerx service-delivery capacity, and the creation of a Social Impact Team that will focus on building trust with Downtown's unsheltered population. 

Downtown residents and businesses can access PATH, the City’s Downtown outreach services provider. PATH’s team of essential workers served 493 individuals experiencing homelessness over the past twelve months and offered 4,080 unique sessions of mobile case management (an increase from 2,085 in FY 2020-21).  PATH helped 119 people move from the street into temporary shelter settings and 56 people move from the street into permanent homes. In 2022, the City expanded its agreement with PATH, enabling the organization to add specialists to enhance their service delivery.  This expansion will enable PATH to have outreach providers in the community seven days a week. 

San José’s Downtown has all the right elements for a vibrant city center – highrise housing, an urban university, arts, diversity, mega-corporations and innovative entrepreneurial businesses, open spaces and parks, awesome hotels, a convention center, world-class sports and entertainment – all within a couple of miles of an international airport. With Google’s Downtown West project driving many other developments, and the gradual recovery from the pandemic, we are moving back towards that goal.