2020 Q2 Market Report for San Jose, CA Industrial Market

OVERVIEW:

THE SAN JOSE MARKET is anchored by the city of San Jose, the largest city based on population and size (covering 179.97 square miles) in Northern California. As of 2019, San Jose had an estimated population of over 1 million people, making it the 3rd largest city in all of California, behind Los Angeles and San Diego. San Jose is the most populous city in the San Jose-San Francisco-Oakland Combined Statistical Area which contains 8.7 million people. San Jose’s median annual income continues to rise, and currently sits at $104,234, significantly higher than the US median annual income of $61,937. San Jose has the fifth most expensive housing market in the world, with a median home price of roughly $1,085,000.

San Jose is commonly known as the cultural, financial, and political center of Silicon Valley. Silicon Valley covers a portion of the San Jose Industrial Market, extending to the north from Los Gatos to Milpitas, and northwest to Palo Alto. San Jose is Silicon Valley’s largest city. Other major Silicon Valley cities include Sunnyvale, Santa Clara, Redwood City, and Mountain View.

San Jose is a United States Foreign-Trade Zone (FTZ), which means that the city is granted jurisdiction to oversee and administer foreign trade in Santa Clara County, Monterey County, San Benito County, Santa Cruz County, and in the southern parts of San Mateo County and Alameda County. San Jose received its Foreign Trade Zone Grant in 1974, making it the 18th foreign-trade zone established in the US, out of 186 active trade zones in the US. Merchandise may be held in FTZ without being subject to Customs duties or other added value taxes. Importers, manufacturers, and distributors can realize cost-savings benefits because they can avoid payment of US Customs duties. This relief is designed to lower the costs of US-based businesses engaged in international trade and thereby create and retain the employment and capital investment opportunities that result from those operations.

San Jose is known as a city of innovation. In early 2020, San Jose city officials announced a new “innovation zone” located on the west side in San Jose where companies can test new technology. Several companies are listed as early collaborators in the effort, including Federal Realty Investment Trust, Amazon, and Verizon. San Jose also houses the headquarters of many global technology companies including: Cisco Systems, eBay, Adobe Inc., PayPal, Broadcom, Samsung, Acer, Hewlett Packard Enterprise, and Zoom.

The San Jose market had a low unemployment rate at 3.5% compared to the national average unemployment rate at 4.4% in March of 2020, prior to the COVID-19 pandemic. The unemployment rate in San Jose had historically remained below 4%, however, as of June 2020, San Jose’s unemployment rate increased to 10.8%, below the national average at 11.1%, as a direct result of the pandemic.

While the retail and office markets in San Jose have been hit hard by the pandemic, the industrial market has seen a less significant impact. A large portion of the San Jose Industrial market is flex, lab and R&D space – all of which have remained relatively unaffected by the pandemic. Although vacancy rates remain low at 5.8%, a few landlords in the industrial segment have offered concessions of up to 10% rental reduction. The entire US is seeing similar impacts as a result of the pandemic, where industrial segments are the least impacted. However, the San Jose Industrial market has managed particularly well due to low vacancy rates and strong demand prior to the pandemic.

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