Top 5 San Jose Submarkets for Construction Activity
Although the metro had nearly 12,000 units underway, significant delays due to the novel coronavirus could be in store for many projects.
With multifamily deliveries cooling in the years following the 2015 cycle high of 6,365 units, San Jose faces several challenges related to its rental market. Though only 521 units were delivered in the first four months of 2020, developers have been moving forward on a wide range of projects—at the end of April, 11,783 units were under construction. However, the COVID-19 pandemic is likely to cause the South Bay’s housing shortage to grow even more acute.
The global health-care crisis has had a sizable impact on San Jose. Amid nationwide construction delays, Santa Clara County, along with other Bay Area counties, issued orders effectively halting multifamily construction in early April. All projects—except, notably, those with at least a 10 percent affordable component—were shut down for nearly the entire month. Although the counties later revised the order to enable most types of construction to continue, ongoing concerns relating to social distancing and the spread of the disease have led many developers to put their projects on hold.
The table below shows San Jose’s top submarkets for multifamily development as of May, based on data provided by Yardi Matrix.
Apartments in the Milpitas submarket—with rents typically less than the metro average—are in high demand, and developers have taken note. Three projects totaling 1,103 units delivered in 2019, and an additional 916 apartments were underway in May, with 333 slated to come online by the end of the year.
The largest project under construction was Anton Development’s 583-unit Anton Aspire and Ascend, located at 1821 and 1828 S. Milpitas Blvd. The development kicked off in the second half of 2017, backed by a $121.7 million construction loan from UBS. Although work was on hold due to the pandemic, the project is slated to deliver by summer 2021.
4. Mountain View–Los Altos
Development has been relatively constrained in recent years in the Mountain View–Los Altos submarket, despite the presence of many of Silicon Valley’s largest tech employers, including Google, Microsoft and Mozilla. In the past two years, only 280 units were delivered, even as rents continued to climb.
Developers picked up the pace going into 2020, however. In February, Lennar Multifamily delivered the 204-unit Novo, and an additional 1,463 units were underway, with upwards of 85 percent estimated to deliver before year’s end. Prometheus Real Estate Group’s 583-unit The Dean was the biggest multifamily development underway. Northwestern Mutual is providing $205 million in financing for the project at 458 San Antonio Road in Mountain View. Construction began in late 2017 and is expected to finish at the end of the year.
East of Mountain View, Sunnyvale shares much in common with its neighbor, namely some of the market’s highest rental rates amid slow development. Google, Apple and Lockheed Martin all maintain a major presence within the submarket. While some of the larger employers are making efforts to improve the availability of affordable housing, developers only added 264 units during the past two years.
The largest project underway in May was SummerHill Apartment Communities’ 537-unit Nuevo, at 3505 Kifer Road in Santa Clara. The development broke ground in late 2018 and includes 98 affordable units. Wells Fargo is providing $139.7 million in financing for the property, which is expected to wrap up toward the end of summer this year.
2. Santa Clara
With just under 2,300 units underway, accounting for more than one-fifth of existing inventory, Santa Clara is one of the South Bay’s busiest development scenes. The submarket’s most recent major delivery occurred nearly three years ago, in mid-2017, with few new units coming online since. As a result, demand has pushed developers to move forward with a number of major projects.
Irvine Co.’s Santa Clara Square, with 1,847 units, is by far the largest development underway. The project broke ground in early 2017, and, following completion in early 2022, will be the developer’s second-largest multifamily property in its nationwide portfolio. PNC Bank is providing Irvine with $155.7 million in financing. Located at 3320 Montgomery Drive, within half a mile of 3.5 million square feet of Class A office space, the community’s unit mix will include studios to two-bedroom apartments.
1. Central San Jose
Topping our list, Central San Jose is set to expand at a rapid pace: The submarket’s 2,555 units underway come to nearly 40 percent of completed stock. Some 900 units are slated for delivery later this year, with more than 1,500 coming online in 2021.
The largest community under construction was Bayview Development Group’s mixed-use MIRO at 167 E. Santa Clara St. The full project, backed by a $288.8 million loan from Goldman Sachs, includes two 28-story residential towers with 630 units above a podium with 14,381 square feet of retail and 24,693 square feet of office space. Although completion was initially slated for spring 2021, the pandemic has temporarily halted the project.
Yardi Matrix covers all multifamily properties of 50+ units in size across 133 markets in the United States. This ranking reflects deliveries of properties within that sample group.