16 Acres in South San Jose Sold to Developer For Warehouse Project

Monday, June 9th 2014

Panattoni Development Co. has bought 16 acres of bare land in South San Jose where it is planning to build out a speculative warehouse project of about 300,000 square feet, a deal that would represent the first new construction in this part of San Jose in years.

Industry sources told me Panattoni paid about $5.1 million, or about $7 per dirt foot, for the site long owned by Foster City-based Legacy Partners, located between Hellyer Avenue and Piercy Road in San Jose’s Edenvale neighborhood. The site is fully approved for about 280,000 square feet of commercial development, and I’m told Panattoni plans to build three warehouse buildings there without a tenant in hand, but I wasn’t able to dig up specifics.

Panattoni has been active in the region lately. In February, the developer announced plans to build a 173,000 square foot industrial building on 9.3 acres in Fremont, on spec, meaning it will start construction without having a tenant lined up. That can be risky, but observers and developers said they’re confident that there is plenty of demand for warehouse and manufacturing space after decades of under-investment that has left existing buildings out of date.

Legacy loaded up on property in south San Jose in the late-1990s and early-2000s, as commercial developers led by Carl Berg bet big on the area as an R&D market. South San Jose never quite took off to the extent developers were hoping it would, however, and today the area has roughly 20 percent vacancy in the R&D category. The market for industrial property, however, has been strong. According to Cassidy Turley statistics, south San Jose’s 14.3-million-square-foot manufacturing base was only about 4.3 percent vacant in Q1. Warehouse in South San Jose was 6.2 percent vacant.

But even those tight numbers may not tell the whole story because plenty of the existing space does not have the height, electricity capacity and modern amenities tenants are demanding.

“There is a shortage of quality industrial product, and it’s striking because South San Jose is the largest MSA in the Bay Area,” said Greg Matter of JLL, who represented Panattoni in the acquisition. Jere Hench of Colliers represented Legacy.

Panattoni’s project is just part of a larger trend of developers finally building industrial product after years of virtually no activity on this front. Trammell Crow Co., Overton Moore Properties and Westcore Properties all have ground-up warehouse or manufacturing projects planned. Conor Commercial had success last month, leasing its 600,000-square-foot warehouse in Newark to Amazon. On the owner-user front, Super Micro Computer is also planning a huge industrial project in North San Jose at the old Mercury News campus, and United Natural Foods Inc. is seeking approvals for a large distribution center in Gilroy.

There’s some indication that South San Jose could be in line for more action. Its biggest commercial activity in recent years has been limited to the former Hitachi campus, where residential and retail developers have been snapping up properties on that site. HGST, a unit of Western Digital, is planning an expansion there of its manufacturing and R&D space, as I reported earlier this year. More bodies coming into the southern part of the city would be a good thing for landlords there. Most notably, MWest purchased most of the the assets of Carl Berg’s Mission West Properties in late-2012, which included numerous projects in the area.