Developer Plans Apartment Project Near Google HQ as California Faces Affordability Concerns

Developer Plans Apartment Project Near Google HQ as California Faces Affordability Concerns

A developer is planning what could be one of the largest housing projects underway in California's Silicon Valley near the headquarters of technology giant Google, where rising prices have served as a headwind for current and prospective residents.

LH Housing has filed plans with the City of San Jose to build 780 affordable rental units on a 32-acre parcel within Silicon Valley's largest city. The region commands rents that are third-highest in the nation, behind only New York and San Francisco, driven in part by the technology companies based there, according to CoStar data.

Silicon Valley cities that are home to technology companies including Google, Meta and Apple have the highest apartment rents in the region, according to CoStar data, with Google's home of Mountain View counting the highest rents of $3,310 per month, above the national average of $1,689. San Jose's average monthly rents are hovering around $3,000 per month, up from $2,950 last year.

San Jose saw a "substantial loss of population during the pandemic" driven in part by these higher rents, according to CoStar data. California is looking to address higher housing costs by requiring each city to increase their residential development over the next decade. Some companies, including Amazon, have been contributing money to build housing in the wake of criticism that they drive up local costs.

The San Jose site, near 10 Topgolf Drive, is about 3 miles from a pair of buildings Google leased last year totaling 368,000 square feet on Brokaw Road and Bering Drive in Santa Clara County in the South Bay Area. The company's Mountain View headquarters are located elsewhere in Santa Clara, about 15 miles to the Northwest, where the company leases more than 1 million square feet of office space.

California is short some 3 million houses state-wide to accommodate its population, according to the Public Policy Institute of California. San Jose is required to build more than 62,000 housing units by 2031, the second highest mandate for the Bay Area region behind San Francisco and the fourth overall requirement for the state.

Higher Costs

LH Housing is a Los Angeles development affiliate of Asia's Korea Land & Housing Corp. It is fully financed by the South Korean government, according to its website, and has projects in several South Asian countries.

The company's nearly 800-unit housing proposal is among the largest such projects underway in the region, and it is located adjacent to a similar plan from Genesis Commercial Capital, a fellow Los Angeles developer that's planning 804 units. That project is also slated to be 100% affordable, filings indicate.

Affordable housing in California is defined as homes priced between 30% and 80% of the area's median income. San Jose's area median income is about $136,000, according to Census data, about 48% above the state's median income and roughly 80% higher than the U.S. average.

Silicon Valley's rent growth has seen a steady climb over the past 20 years, coinciding with the growth of the tech sector, according to CoStar data.

"The success of Silicon Valley's tech economy” has provided a premium on rents in the region, according to CoStar’s analysis.

Apartment Construction

 

About 7,800 units are under construction in San Jose, representing 4.9% of the market's inventory. That activity, near an all-time high, “is by no means unsustainable,” due to demand for lower housing costs, according to the CoStar market report.

Google's pricey home base of Mountain View, often considered part of metropolitan San Jose, has also seen apartment construction increase in recent years.

"The presence of leading tech employers has solidified housing demand in" Mountain View, according to a CoStar market report. "Moreover, the high cost of for-sale housing elevates demand for apartment rentals."

New projects have leased quickly, CoStar data shows. Among the new communities completed in 2023, the Tillery in Mountain View has 226 units and is 95% occupied, with average rents around $4,700 per month. Hanover Winchester, a 366-unit that opened in July near Santana Row in San Jose, is 50% leased with average rents of $4,400 per month.

Google once envisioned building several real estate projects across the Bay Area totaling 15,000 housing units and millions of square feet of commercial space in a partnership with Australian developer Lendlease, but the duo dissolved the pre-pandemic deal last year.

Pandemic Demand

LH Housing's plans include studios and one-bedroom units on a lot that was once slated to be a 200-key hotel. Along with being near Google offices, the project sits next to a growing retail district filled with entertainment and dining spaces.

The area on Topgolf Drive is named after the first outpost in the Bay Area for the the fast-growing chain of high-tech entertainment centers that opened in 2021, a tech-focused driving range with electronically-tracked golf balls alongside food and beverage offerings.

Demand for entertainment retail property is rising in the United States in the wake of the COVID-19 pandemic with the segment expected to fill 9 million square feet of commercial space over the next two years, according to a JLL report.

Meanwhile, the pandemic took a toll on San Jose's office market which saw vacancy rates soaring to historic highs of 25% in 2022, though levels have somewhat stabilized to nearly 16%, just above the national average of nearly 14%.

Large mixed-use projects are on hold in the region, such as Google’s plans in downtown San Jose for 7 million square feet of offices and 4,000 residences.

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