Apartments could fill empty downtown San Jose storefronts

The owners of a luxury downtown San Jose apartment complex want to transform the building’s commercial space into more housing after struggling to find business tenants.

Houston-based The Hanover Company is seeking approval at a San Jose Planning Director’s hearing on Wednesday to make the change in its building at 715 W. Julian Street, just off The Alameda about 1,000 feet Diridon Station and the SAP Center.

The building, called Hanover Diridon, has 249 apartments. Hanover wants to convert the building’s roughly 26,500 square feet of ground floor commercial space to an additional 19 apartments, city reports said.

Hanover’s representative, San Jose land use consultant Erik Schoennauer, said the building was completed in 2021 after working through construction and planning phases stretching back to 2017.

“In those six years we’ve never been able to find a tenant for the ground floor space,” Schoennauer told San José Spotlight.

Schoennnauer said developers are always on the lookout for tenants to lease ground floor space, but with no takers over several years, converting the vacant storefronts to apartments makes most sense.

“It doesn’t benefit anybody because it’s dead space, underutilized,” he said.

Schoennauer noted the building is on Julian Street at Stockton Avenue tucked away from The Alameda, a main street which itself is facing about a dozen commercial vacancies.

“These new residents could live there and then support the other neighborhood businesses. We need more population, that’s always the solution to improving the street level environment in downtown and this area, the west side of downtown,” he said.

Owners of another luxury apartment complex closer to The Alameda, Vespaio, are considering converting some of the second floor commercial space to residential use, a source familiar with local development said.

Councilmember Dev Davis, who represents the area, said she is not concerned about these potential conversions.

“It would be an issue for me if we didn’t have so much empty commercial-only space along The Alameda,” Davis told San José Spotlight. “I am sensitive to the property owner’s assertion that it is just a complete waste to leave space empty for an indeterminate amount of time, especially when we all know we have a housing shortage.”

Schoeannauer said part of the challenge is the high cost of new construction, which pushes developers to increase ground floor commercial rents higher than what businesses are usually willing to pay.

“There’s just a total market disconnect between the cost of new construction and the market lease rates in the area,” Schoennauer said.

While Schoennauer expects offices in downtown San Jose’s core to eventually start converting to housing on upper floors, he doesn’t envision ground floor commercial space conversions to housing taking off  in the same way. He said people likely won’t want to live in ground floor housing along main streets like Santa Clara.

Hanover Diridon and Vespaio are just outside the envelope of San Jose’s approved Urban Village plan for The Alameda, a 45-acre area along the main drag stretching from Wilson to Magnolia avenues. Urban Villages are designated areas of San Jose near public transit where city leaders have called for focused growth of dense developments, encouraging mixes of housing and retail spaces and walkable neighborhoods near public transit.

Davis said much of the Urban Village model is based on the success of Santana Row, but not every plan has been able to replicate that success. She said city leaders need to respond to the market similar to how property owners are approaching the issue.

“I think the larger context is that there is a question about how much residential is needed to support certain amounts of commercial, that’s an outstanding question we haven’t answered,” Davis said. “I don’t know what that answer is for downtown, but I can tell you, based on all the vacant storefronts along Santa Clara Street, we haven’t hit whatever that amount is.”

Contact Joseph Geha at [email protected] or @josephgeha16 on X, formerly known as Twitter.