Santana Row’s evolution as a magnet for shoppers
Realty expert talks about America’s retail glut and how San Jose is different
Jeffrey Berkes has overseen San Jose’s Santana Row through its 15 years of innovation and reinvention during Silicon Valley’s boom and bust cycles. Berkes, West Coast president of Federal Realty, which is Santana Row’s developer, recently sat down with this news organization to discuss the retail complex’s many uses. Berkes also addressed how Santana Row and the nearby Valley Fair mall have together formed Silicon Valley’s “dominant retail node.”
Q
What’s your current assessment of Santana Row?
A
Santana Row has been open for 15 years now, and we celebrated our 15th anniversary on Nov. 7. We have a hotel, retail, residential and office components.
Q
How is the hotel doing?
A
Since Hotel Valencia opened, it has been the market leader in both occupancy and room rates. People do not want to drive down a highway, pull off at an exit, then get back in their cars to go out to dinner, or shop. People can walk downstairs at Hotel Valencia and find 20 or 30 places to go eat in an exciting environment.
Q
What about the residential components?
A
The for-sale condos were first sold about 10 to 12 years ago, and both the condos and apartments command topof-the-line pricing and occupancy.
Q
Why do you think that’s the case?
A
People like to live here. If they don’t want to be cardependent on nights and weekends, they don’t have to be.
Q
What is going on with your office projects?
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AIn 2009, we delivered 300 Santana Row; last year, we delivered 500 Santana Row; and we have 700 Santana Row under construction now. The offices that are complete are 100 percent leased. We are getting interest, but no leases yet, on 700 Santana Row.
QWhat is driving the full occupancy for the completed offices?
ATalking to executives who make relocation decisions, employees want to be in this type of environment for recruiting and retention. It no longer suffices to have employees in an office park with a deli on the ground floor and lots of surface parking. Employees want to be in an environment with a lot of amenities.
QWhat’s the status of the retail?
AOver the 15 years here at Santana Row, retail has evolved. People have moved away from transaction-oriented shopping. If you want a retail transaction, you can just open up your laptop and do that transaction from anywhere. What people want now is a good retail experience
when they go out to shop, or dine, or hang out with their friends. So they look for places like Santana Row.
QAre you suggesting that Santana Row is Rodeo Drive North?
AI wouldn’t go that far. Rodeo Drive is very luxury oriented. Santana Row has a much broader retail offering. We offer a complete experience.
QWhat’s the status of the domed theaters site across Winchester Boulevard? Are you going to develop that area?
AWe think so, and we hope so. There is a CEQ A lawsuit pending, and given there is a lawsuit, we can’t say too much about it. In September 2016, we received entitlements from the city of San Jose for just shy of 1 million square feet of commercial space.
QDoes the Google village proposal for downtown San Jose benefit Santana Row, or does it pose a challenge?
AGoogle’s project is going to be a net benefit for us here, for the city of San Jose, and the entire South Bay. We are firm believers in long-term investments. We think that long-term, having a
healthy downtown San Jose is very important. We are all for downtown San Jose. Google coming to the downtown is huge.
QWith the rise of Amazon and so much online shopping, what’s the biggest challenge to projects like Santana Row?
ARetail has always been changing; it is one of those industries under continual evolution and improvement, and that’s especially necessary with the increasing acceptance of online shopping.
QIs there an over-saturation of retail?
AWe have way too much retail space in the United States. We have two to five times as much retail space as they have in other parts of the world — Europe, Asia and so forth.
QThat’s a pretty scary statistic, up to five times too much retail space.
AA lot of retail space simply has to go away. But if you have a well located property, there is plenty of demand from tenants. Certain properties will consolidate that demand. We view Santana Row and our other properties as consolidators of that demand. There are fewer retailers, and the retailers that are successful will have fewer and smaller stores, so being a consolidator is very important.
QHow does the Bay Area retail market fit into that consolidation trend?
ALuckily, here in the Bay Area, we don’t have the same amount of excesses as we do in other parts of the country. The notion that every big mixed-use project needs 500,000 to 600,000 square feet of retail space is kind of a notion from five to 10 years ago.
QWhat is the biggest disappointment at Santana Row?
AThe greatest disappointment was the timing of the property coming on line in 2002. We opened up at a very difficult time after the local economy had suffered a great shock to its system following the dot-com collapse. This area lost a couple hundred thousand jobs. Development is a risky business, and one of the risks is there is such a long lead time to delivering product. We started in a great market and opened up in a very difficult market.
QHow did you overcome all of that?
AWe have both a strong balance sheet and very capable team. We had to work through unforeseen circumstances such as the bursting of the tech bubble. We have been able over 15 years to adapt and evolve and take advantage of the changing marketplace.
QWhat’s the biggest pleasant surprise at Santana Row?
ASantana Row’s ability to evolve and meet the constantly changing needs and demands of a very well educated and technologically savvy customer.
QDoes the nature of the Bay Area spur you
to be innovative?
AWe are fortunate to be here in Silicon Valley where there has been so much great job growth and innovation. At Santana Row, we have been able to evolve along with the marketplace. Adding office buildings is a good example of that. When Santana Row was originally entitled, office space was not part of the plan. But in partnership with the city of San Jose, we have been able to evolve as the demands of employees changed.
QHow would you describe the dynamic with Valley Fair mall?
AValley Fair is going through a major expansion and overhaul. That expansion alone is adding more square feet of retail space than all the retail we have at Santana Row. Valley Fair has always been a consolidator, a successful regional mall. We wouldn’t have been able to build Santana Row without Valley Fair, and its success is why we wanted to be across the street. People have learned over the years to shop both malls. This now is the dominant retail node for the South Bay.