SAN JOSE — A real estate venture is readying a decision about when — or whether — to launch construction of a huge tech campus proposed for downtown San Jose, executives said Wednesday.
Boston Properties said Wednesday that it’s in the final stages of deciding the development plans for the company’s ambitious and potentially eye-catching office complex that could sprout in downtown San Jose near the Diridon train station.
The Platform 16 campus, to be located at 440 W. Julian St. in San Jose, is being jointly developed by Boston Properties and Canada Pension Plan Investment Board.
The two organizations are nearing a decision about the timing for the project’s construction, Boston Properties executives told Wall Street analysts on Wednesday.
“We will likely, with our partners, have a decision in the next couple of months as to whether we want to move forward with that project,” Douglas Linde, president of Boston Properties, said during the conference call with the analysts.
Numerous issues must be weighed, including the reality that the project won’t be ready to be offered to tenants for a few years.
“Platform 16 is not going to deliver until 2025,” Linde said.
Perhaps the biggest challenges are skyrocketing costs for construction materials and mechanical components for buildings, Boston executives said during the conference call.
“Our total base building construction costs have increased by just over 13% relative to the pricing we had 24 months ago,” Linde said.
Worsening matters: Regardless of the expense, developers aren’t able to locate building materials and supplies as swiftly as was the case previously.
“The lead time to obtain base building materials after construction drawings are approved has risen from 20 weeks to 40 weeks, as an example, for base building mechanical systems,” Linde said.
That new reality, in turn, has caused decision-making to become less certain.
“You have to make decisions much earlier in a construction schedule or risk delays,” Linde said. “We are doing that.”
Platform 16 is a proposed development with a striking look, featuring 16 terraces in a project that would be perched near the banks of the Guadalupe River and a short distance from Google’s Downtown West neighborhood.
Once complete, the development would total 1.1 million square feet and consist of three office buildings and a garage on a site bounded by Autumn Parkway, West Julian Street, North Autumn Street, and a railroad line.
As the decision approaches, it’s become clear to Boston Properties that the Silicon Valley market, in particular, has resumed being a hotbed of leasing activity and tenant demand for prime office spaces.
“The Class A Silicon Valley leasing market had a particularly strong 2021 with very healthy absorption” of office space, Linde said.
And it appears that demand for office space in Silicon Valley remains at elevated levels as 2022 gets underway. Technology behemoths are fueling the demand.
“Just last week, we got wind of another 500,000 square feet office tenant expansion that was one that we had not heard of, one of the tech titans,” Linde said.
The last time Boston Properties alerted Wall Street analysts that a major tech company was seeking office space in Silicon Valley was last fall when it disclosed that a big player was scouting for 700,000 square feet to rent.
A few weeks after that disclosure, Meta Platforms, owner of the Facebook app, leased 719,000 square feet in a huge Sunnyvale campus near the corner of Crossman Avenue and Caribbean Drive in northern Sunnyvale that also fronts on East Java Drive.
Overall, the office markets look favorable in Silicon Valley and several other regions where Boston Properties is active, such as Manhattan — but markets appear weak in San Francisco.
It also appears, on an anecdotal basis, that workers, including tech employees, are growing increasingly anxious to return to the office after nearly two years of remote work due to coronavirus-linked restrictions.
“With many workers, there is pandemic fatigue,” said Owen Thomas, Boston Properties’ chief executive officer. “You hear more and more about employees wanting to come back for the camaraderie, the learning, the training that goes on in the office.”
Despite these numerous hopeful signs, external factors such as the coronavirus continue to pose a challenge for commercial real estate.
“We need this omicron variant to cool off,” Thomas said.
