Future looks bright for Santana Row’s new office space, as Splunk takes up residence

SAN JOSE >> Splunk, an upand-coming tech firm, has officially moved into a gleaming new office building at San Jose’s Santana Row, whose principal owner and developer has sketched a bright picture for the iconic mixed-use complex earlier this week.

The mixed-use retail, restaurant, office, hotel, residential, movie, and entertainment complex in west San Jose has hit a “home run” with its new 700 Santana Row office building that’s leased to cloud services company Splunk, Federal Realty Investment Trust, which owns Santana Row, told analysts during a conference call.

“On the development side, we’re incredibly active with 700 Santana Row complete and just turned over to Splunk last week,” Donald Wood, Federal Realty’s chief executive officer, said during the Tuesday call.

Splunk has leased two big office buildings at the southern end of Santana Row. The 700 Santana Row offices that Splunk has just occupied consist of 301,000 square feet. Splunk had previously leased 500 Santana Row, which totals 235,000 square feet.

All told, the 536,000 square feet Splunk has leased in San Jose could accommodate 2,700 Splunk employees.

“This building is a home run,” Wood said, referring to the just-completed 700 Santana Row building.

Santana Row has effectively managed to reinvent itself yet bolster its traditional offerings and establish itself as a Northern California destination, even in the face of a forbidding “retail apocalypse” that has chewed up the business models of venerable brick-and-mortar merchants such as Sears and Macy’s.

One crucial component of the development alchemy that has transformed Santana Row: Two big office buildings that were constructed, then swiftly leased up, primarily to Splunk.

Other key ingredients: Adding unique restaurants such as Blue Bottle Coffee, Momosan Ramen & Sake, and Meso Mediterranean, and tapping into a wave of interest in fitness outlets by signing up companies such as Hot 8 Yoga, Barry’s Bootcamp, and SoulCycle.

While a small merchant might leave Santana Row from time to time, officials at the center say Santana Row is effectively completely full.

Federal Realty has launched a major development project on the west side of Santana Row with the first of several office buildings that will become new tech campuses near the legendary Winchester Mystery House.

“Across the street, at Santana West, construction is well underway,” Wood said. The initial building is called One Santana West and will total 360,000 square feet.

Federal Realty intends to spend $100 million on One Santana West during 2020 and another $150 million in 2021. The first office rents for the brand-new building are anticipated around 2022, Wood said.

It appears Federal Realty has an excellent chance to land a tenant for One Santana West, Federal Realty indicated during the call, which was held to discuss the company’s financial results for the fourth quarter of 2019.

“Strong interest in the building at this very early stage is encouraging,” Wood told the analysts.

Newmark Knight Frank commercial real estate brokers Todd Shaffer, Randy Gabrielson, and Tracey Solari are scouting for tenants to lease One Santana West.

The residential components at Santana Row also appear to be faring well, Wood indicated in his comments. Wood also said rents are rising for the apartments at Santana Row.

“The compounded annual growth rate for those residential rents has been about 3.8 percent, almost 4 percent” for a number of years in the Santana Row apartments, Wood said. He added that these levels in residential rent growth haven’t been achieved every year, but the growth has nevertheless remained “strong.”