Related Cuts Office, Ups Industrial in Bay Area Master Plan
The market won't sustain as much office as originally planned.
The city of Santa Clara, Calif., has approved a change in plans for Related Santa Clara, a major mixed-use development by Related Cos. The master plan will see a 4 million-square-foot reduction in the amount of office space and a concurrent increase in light industrial and distribution facilities. The Santa Clara City Council approved the change, acting on the recommendation of the city’s planning commission.
Related proposed the change last year. In asking for the modification, the company cited the new realities of the commercial real estate market, mainly that office fundamentals are weak and unlikely to recover soon. The planning commission apparently agreed.
“Due to post pandemic shifts in the retail and office market, construction costs have risen dramatically between 5-15 percent, office vacancy is at 15 percent and retail vacancy is at 10 percent or more,” the planning commission noted in a report in June.
“Due to the market changes, force majeure and rising interest rates, Related Santa Clara LLC is now proposing an amendment called Scheme C with light industrial uses, which include warehouse and distribution facilities on Parcels 1 and 2 only, where previously there was office campus,” the report continued.
The project, City Center, is on a number of parcels owned by the city, and will ultimately total more than 9.1 million square feet on 240 acres near Levi’s Stadium, home of the San Francisco 49ers NFL team. That total figure will not change due to the shift away from office space. Moreover, the goal of remaking that part of downtown Santa Clara remains the same, according to the planning commission.
“City Center would have land uses that are supportive of an urban vibrant district with retail, amenities, office and residential to create a 24/7 walkable, pedestrian-oriented neighborhood near transit,” the report explains.
READ ALSO: Why Mixed-Use Developments Are All About the Right Synergies
The updated plan also increases affordable housing from 10 percent to 15 percent at deeper affordability levels. Related remains the project’s master developer, and cohesive design standards will guide development of the parcels.
Related began working on the project in 2013, when it signed an exclusive negotiating agreement with the city. Santa Clara approved the master plan in 2016. Since approval, however, it has been tough going for the development, facing a lawsuit by the city of San Jose and regulatory challenges over environmental remediation on part of the property and then shrinkage in demand for office space.
Silicon Valley office market still hurting
The Silicon Valley office vacancy rate was up slightly in the second quarter of 2025 compared with the first, coming in at 20.7 percent, according to a Cushman & Wakefield report. Year-over-year, the rate is something of an improvement, since it came in at 22.3 percent in Q2 2024.
Even so, there is a lot of office space on the market, allowing Related to successfully argue that its project doesn’t need to add to that total. There was 19.5 million square feet of available space as of Q2 2025, a rise from 18.8 million square feet in the previous quarter, the report shows.
Meanwhile, new product under construction across the region stood at 262,000 square feet, but almost all of that (232,000 square feet) is a build-to-suit project. When completed by the end of the year, it will have little impact on the market’s vacancy.
You must be logged in to post a comment.