SAN JOSE — An eye-catching San Jose office building has landed a big lease with a cutting-edge tech company in a deal that offers a hopeful counterpoint to the dismal swaths of empty spaces in the Bay Area.
A large new tenant has agreed to take some space at One Santana West, a new office building at 3155 Olsen Drive across the street from the Santana Row neighborhood in San Jose, according to executives with Federal Realty Investment Trust, the principal owner and developer of Santana West.
One Santana West office building (foreground left), located at 3155 Olsen Drive in San Jose across the street from Santana Row (background). (Federal Realty Investment Trust)
The disclosure of the rental agreement came during a conference call that Federal Realty’s top officials held with Wall Street analysts to discuss the real estate firm’s financial results for the April-through-June second quarter.
“Lease-up at Santana West continues with a newly signed deal with an AI-powered cloud database provider for 24,000 square feet on the first floor of the state-of-the-art building,” Donald Wood, Federal Realty chief executive officer, said during the conference call.
The tech company’s deal extends what appears to be brisk leasing activity at One Santana West, which totals roughly 376,000 square feet.
“Active negotiations with other prospective tenants for much of the remainder of the building should enable us to continue to report on new deals,” Wood said during the conference call.
Before the lease with the artificial intelligence tech company, One Santana West had enticed two other companies to sign rental agreements.
— PwC, a professional services titan, signed a lease during the spring to occupy 141,000 square feet.
— Acrisure, a fast-expanding financial technology and insurance company, leased 29,000 square feet in late 2023.
Newmark, a commercial real estate firm scouting for office tenants for Santana Row, has used the array of amenities at the destination neighborhood to entice tenants to sign up for spaces in One Santana West.
“The leasing at Santana West with this new AI-based tech company is going to bring us well above 50%,” said Dan Gee, Federal Realty’s chief financial officer, referring to the amount of the building that is rented.
Federal Realty didn’t disclose the name of the tenant that took the space.
The rental agreement materializes at a time when office vacancies throughout the Bay Area have reached or are near all-time highs.
“This is an important sign for the San Jose office market,” said Bob Staedler, principal executive with Silicon Valley Synergy, a commercial real estate firm. “Every lease matters to dig out of the huge number of vacant square feet of existing office space.”
One Santana West appears poised to land even more tenants that collectively could take big chunks of additional space in the office building.
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“We’re working back and forth, actually pretty rapidly right now, with about another 70,000 square feet of demand there,” Federal Realty’s Gee said. “We may not be able to sign all of them. We’ll see.”
The activity and interest are strong enough, however, that Federal Realty envisions a time in the relatively near future when One Santana West could be filled up.
“We’ll start to get pretty well leased up by the end of the year, beginning of the first quarter of next year,” Gee said.
In 2023, Federal Realty began to seek multiple tenants for One Santana West. The focus on landing tenants that would take less than the entire building appears to be paying off.
“That’s where we’re seeing really, really strong demand,” Gee said, referring to the interest from smaller tenants.
The real estate firm’s original approach was to sign up a single big tenant to occupy the entire One Santana West building.
“Federal Realty is showing true leadership in being able to break apart their building into smaller spaces,” Staedler said.
