San Jose Retail Market Report

Fundamentals remain steady. San Jose’s retail sector has stayed resilient amid economic headwinds. Entering this year, the vacancy rate registered at 4.7 percent, 120 basis points below any other Bay Area metro. While several world-renowned tech companies have reduced staff in recent months, the industry is dynamic, and high-skilled professionals are finding new opportunities relatively quickly. Furthermore, the market boasts the nation’s third-largest median household income at $160,500 annually. The affluent consumer base helps sustain discretionary spending amid widespread inflation, benefiting retailer space demand. Grocery stores have been opportunistic, with tenants like Costco, Dai Thanh Supermarket, 99 Ranch and Sprouts Farmers Market each committing to blocks of space spanning at least 20,000 square feet in the past year. Although headwinds like rising interest rates are expected to persist in the near term, retail fundamentals may improve in the coming quarters. Completions are projected to fall under 200,000 square feet for the third straight year in 2023. Nominal supply pressure will require expanding tenants to take over existing space, allowing vacancy to decline on an annual basis for the first time since 2017.