Ritchie: We will need office buildings again

As we crawl through the recovery in our Bay Area urban cores post-pandemic with an enduring work from home revolution, it seems like we may never see another high-rise downtown office building construction wave again.

Record shattering vacancy rates and value plunges abound, the media has now made it a “who is worst” competition between San Francisco, Oakland and our San Jose. There is no doubt we are really only in the second inning of the wave of defaults and foreclosures — this will be very painful for an extended period, we all know that. Smart buyers are on a major bargain hunt.

But you have to believe two things to not see into the future. One, that our urban cores will continuously wither, and two, that rents will not grow again. Both have proven dead wrong in the Bay Area through multiple cycles over the last 40 years.

Similarly, the constant din about BART to downtown San Jose and its future uselessness is also way off course. Any region on earth with a population in the multiple millions requires high speed underground transit. This will hold true even with self-driving cars and air taxis, those are not enough to move masses. And yes, in the near to mid-term our transit ridership-caused funding crisis will worsen, but that is no reason to abandon fixing one of the greatest mass transit errors in the U.S. when shortsighted voters for BART skipped San Mateo and Santa Clara counties in the 1960s and 70s.

The rendering below has never been published before. It is a basic massing diagram for a proposed 242,000-square-foot office tower at 50 W. Santa Clara St. in San Jose between Market and First streets. We have branded this 21-story building “The Clayton” in honor of the existing 1875 James A. Clayton Building that we occupy on site presently. This location is quite literally on top of the future main BART station with the new terminal directly across the street, actually with parallel property boundaries.

As one of three existing building owner-users on the site at present, we all got together pre- and post-pandemic to think of the future wherein our row of two-story owner-occupied buildings — plus a small parking lot I own on Lightston Alley — combine for a perfectly square 18,000-square-foot lot that is allowed for up to 21-24 stories of office, hotel or housing. If you chart downtown SF and downtown Oakland pre- and post-BART it is a tale of two very different cities for each. The BART routes on Broadway and Market Street are lined with a wall of the highest density office towers with a mix of high-rise residential and hotels.

Santa Clara Street is our great street in downtown San Jose, it has consistently had the highest success for both retail and office addresses. In the late 1990s I brought developer Opus West down here and basically cooked up on my desk the entire scheme to develop a 70,000-square-foot parking lot into 225 W. Santa Clara St., the 17-story 350,000-square-foot office tower that today houses Deloitte and CBRE amongst others. That one building is arguably the most financially successful office tower ever built downtown, both for the profit made by Opus as a merchant builder that sold it after lease-up, as well as for subsequent owners in terms of highest occupancy and highest rents. Even today. A testament to a well designed Santa Clara Street office address.

Santa Clara Street from Highway 87 to City Hall is fully built out except for the site in the rendering above at 50 W. Santa Clara St. and the massive development around the BART station itself across the street after BART is running. That mega block is a king’s game of tic tac toe with VTA, Swenson and Jay Paul at the table — and in court — and it will ultimately support millions of square feet of mixed-use office, retail, housing and entertainment.

Our plan on our patch of earth is to get the tower built in conjunction with the BART completion, then the VTA block will follow. The latest estimate for BART train horns to honk under downtown is 2037, so as long as I keep surfing and doing yoga, I plan to be at the ribbon cutting.

Note to readers: this is my last of 12 monthly guest commercial real estate columns for San José Spotlight. I appreciate all the comments and dialogue along the way and will continue regular contributions to local media.

San José Spotlight columnist Mark Ritchie is the owner of commercial real estate brokerage firm Ritchie Commercial, and has spent his entire career in commercial real estate. Contact Mark at [email protected].