SAN JOSE — Construction has paused on a huge tech campus in downtown San Jose amid a feeble Bay Area office sector, dealing a fresh blow to the city’s already wobbly urban heart.
Boston Properties has decided to hit the pause button on its Platform 16 tech campus in downtown San Jose, the real estate titan’s top boss told Wall Street analysts during a conference call this week.
“Unfortunately, market conditions in the Silicon Valley, including San Jose, have deteriorated meaningfully,” Owen Thomas, chief executive officer of Boston Properties, said during the call to discuss the company’s second-quarter financial results.
Among the factors that haunt the now-scary Silicon Valley commercial real estate market: rising office vacancy rates, a surge in sublease space being placed on the market by tech companies, and nearly nonexistent demand for large hunks of office space.
“As a result, we have decided to pause construction of the project with the completion of the garage and foundation scheduled for year-end 2023,” Thomas said.
The office campus, located at 440 West Julian Street between Autumn Parkway and North Autumn Street, would total 1.1 million square feet and consist of three buildings if and when it is completed.
Boston Properties had been constructing the first phase of the project, an office building slated to total 390,000 square feet. The first phase also included the foundation for all three buildings as well as a parking garage.
The Platform 16 project is located next to sites where Google intends to develop a new mixed-use neighborhood of office buildings, homes, shops, restaurants, entertainment hubs, cultural loops, open spaces and hotel facilities near the Diridon train station and SAP Center.
Google itself is in the midst of reassessing the timeline for the search giant’s San Jose transit village, which is known as Downtown West.
“The world of office space is very uncertain at this time,” said David Taxin, partner with Meacham Oppenheimer, a commercial real estate firm.
During the April-through-June second quarter of 2023, office vacancy levels reached all-time high levels in four key Bay Area markets: 31.8% in downtown San Francisco, 35.7% in downtown Oakland, 29.9% in downtown San Jose and 21.6% in Silicon Valley, according to separate reports from commercial real estate firms Cushman & Wakefield and CBRE.
“Vacancy rates are some of the highest that we have seen in a couple of decades with no end in sight,” Taxin said.
The Platform 16 pause marks the second time that construction has been halted after it had begun on what’s expected to become a striking office complex. Boston Properties and Canada Pension Plan Investment Board co-own Platform 16.
In March 2020, Boston Properties broke ground on the complex with much fanfare and a ceremony attended by San Jose’s mayor at the time, Sam Liccardo, along with a host of other dignitaries and top officials.
Barely days later, the coronavirus burst onto the scene with ferocity and quickly unleashed brutal economic ailments worldwide, including wide-ranging business shutdowns to combat the spread of the deadly bug. Work ground to a halt on Platform 16 and countless other construction projects.
In February 2022, after a nearly two-year suspension of work on the project that would rise near the banks of the Guadalupe River, Boston Properties resumed construction on Platform 16.
Roughly 18 months later, Boston Properties has decided to again suspend construction work on the project.
The pause for Platform 16 does create a wide-open window of opportunity for a Bay Area development firm that has completed a downtown San Jose office tower.
The 200 Park office tower at the corner of Park Avenue and Almaden Boulevard is an eye-catching highrise totaling 965,300 square feet that can immediately offer tenants big chunks of office space. Jay Paul Co., a savvy and veteran real estate firm, developed and owns 200 Park.
“Flexible floor plates, outdoor terraces and carved light canyons are just some of what makes 200 Park state-of-the art and memorable,” Jay Paul Co. states in a post on the project’s website.
As for Platform 16, despite the fresh setback for that office complex, Boston Properties executives remain optimistic the tech campus is poised for success when the Bay Area’s office market perks up again.
“Though disappointing, as market conditions recover, we will have a project that can be delivered to users in under two years, which is 12 to 14 months more quickly than a ground-up development,” Thomas told the Wall Street analysts.