SAN JOSE — In a trend that could dramatically transform downtown San Jose, feeble demand for office and retail space, worsened by a wobbly hotel sector in the Bay Area, has prodded more building owners to consider converting their commercial properties to housing.
In some cases, owners are considering wholesale conversions of office towers and hotel high-rises. Others are eyeing housing in what had originally been intended as ground-floor retail space. These endeavors come as the region faces a persistent housing crisis and downtowns struggle to rebound in the wake of the coronavirus pandemic, which has resulted in a forbidding landscape for commercial real estate.
“It’s an economic necessity,” said Nick Goddard, a senior vice president with Colliers, a commercial real estate firm. “There is high demand for housing and anemic demand for office space. It makes sense if the conversion can be done in an economically feasible way.”
Some of the latest efforts have emerged on the western edges of downtown San Jose near the SAP Center and Diridon train station, with proposals to convert retail spaces to housing in two existing residential buildings.
Currently, “it’s very difficult to lease retail space that’s on the ground floor of a residential building,” said David Taxin, partner with Meacham Oppenheimer, a commercial real estate firm.
The list of buildings where conversions to housing are under way or in the mix is growing:
At 717 West Julian Street, about 26,500 square feet of ground-floor retail space in the 249-unit Hanover Diridon apartment building is slated to be converted to 19 residential units. City officials have approved the plan for the development at the corner of West Julian Street and Stockton Avenue.
A timeline for the conversion of the commercial space wasn’t immediately clear, and the project plans did not specify how large the converted housing units might be.
Vespaio is a seven-story mixed-use building with 162 residential units and 32,600 square feet of commercial space — some of it leased — at 130 Stockton Ave. The building might see much of that office and retail space converted to 13 residential units, including live-work spaces.
The Bank of Italy tower, a historic landmark at 12 South First Street, for decades has been an office building but could ultimately be converted to residences. That plan is still in the works, according to a source with direct knowledge of the situation.
Multiple options are being considered for the old Bank of the West office tower at 2 West Santa Clara Street. Proposals include 65 apartments, a co-living option with 73 residential units and a “micro-hotel” with 147 rooms. All of these possibilities would include ground-floor retail.
And the southern tower of the Signia Hilton hotel at 170 South Market Street — the former Fairmont — could be sold off and converted into student housing. San Jose State University is located nearby.
In the East Bay, the owner of the Bishop Ranch complex in San Ramon has proposed a dramatic transformation of the Chevron office campus. Sunset Development has proposed the replacement of the vast office park with 2,250 homes, including apartments, condominiums and for-sale houses, as well as mixed-use retail and entertainment sites.
Since the coronavirus outbreak in March 2020 and ensuing business shutdowns and economic challenges, property owners in large American cities have encountered increasingly difficult obstacles in their efforts to attract retail and office tenants to their buildings.
Downtowns in all three of the Bay Area’s three largest cities are suffering. According to a sweeping new poll sponsored by the Bay Area News Group and Joint Venture Silicon Valley, residents are giving up on our downtowns. A whopping 80% considered the state of the region’s three big downtowns in San Francisco, San Jose and Oakland to be an extremely or very serious problem.
The economic woes are particularly acute in San Francisco, which has struggled to attract visitors and is suffering an exodus of retailers and office tenants that has unleashed an economic “doom loop.”
Additional housing units in downtown San Jose could help bolster economic activity in the city’s urban core.
“A building full of residents is better for both the owner and the downtown than an office building that has nothing,” Goddard said. “More housing can add to downtown vibrancy.”
Without conversion efforts, the ground-floor spaces could sit vacant for a considerable period of time, experts say.
“There is a lot of empty commercial space available anyway in downtown San Jose and it could take some time to fill that,” Taxin said. “We don’t need more vacant and blighted storefronts downtown.”
