South Bay property values suffer slowing growth as real estate flops

SAN JOSE — South Bay property values have begun to wobble due to a steadily weakening commercial real estate market in the wake of tech layoffs and an office sector that has floundered, a new report shows.

The assessed value for Santa Clara County real estate has increased in the most recent reporting period, but the pace of the rise in values was the slowest in three years, according to the annual review released by the Assessor’s Office.

The weakening rise in South Bay real estate values could crimp the property tax revenue that flows to municipal, regional and county agencies since the taxes arise from the assessed values.

“This year’s annual assessment roll reflects the complex and unpredictable status of both the region’s residential and commercial property markets,” the Santa Clara County Assessor’s Office stated in the new report.

The overall assessed value for property in Santa Clara County was $696.8 billion for the 2024-2025 fiscal year, which was an increase of 5.4% from the $661.16 billion in assessed values for the 2023-2024 fiscal year. The assessment roll represents an official snapshot of values as of Jan. 1, 2024.

Commercial real estate properties and residential sites produced sharply contrasting performances, the yearly survey revealed.

“Residential properties experienced a decline in value in 2023, rebounded in 2024, and are now the highest in the country,” the County Assessor’s Office report stated. “Commercial property sales are volatile and new construction of commercial properties came to a halt.”

Santa Clara County’s latest total assessed value is at a record-high level.

Still, the 5.4% annual increase in South Bay properties represents the slowest rate of increase in three years, this news organization’s analysis of annual reports from the Assessor’s Office shows.

In the 2021-2022 fiscal year, Santa Clara County assessed values, as of January 2021, rose just 4.6%.

The sluggish increase that year wasn’t a shocker due to the economic maladies that the coronavirus unleashed, including wide-ranging business shutdowns that emptied countless office buildings, commercial properties, retail sites and restaurants.

This time around, the weaker pace of assessed value growth for Santa Clara County properties could be tied to an uneven return to the workplace, job cuts by the tech industry, and a decreased appetite by tech companies for office space.

The next few years could produce a jump in both commercial and residential property values, especially if Google begins and completes vertical construction on a vast mixed-use neighborhood on the western edges of downtown San Jose near the Diridon train station and the SAP Center.

Jamestown LLC, a development partner with Google, recently met with at least one San Jose official, the city’s housing director, to discuss the potential for launching a residential development within the footprint of the proposed transit village, which is known as Downtown West.

Google is pondering the prospect of an affordable housing project at the site of a popular but long-departed hardware store along West San Carlos Street. If housing replaces what is now largely a vacant lot, that could propel property values higher at that site and in adjacent areas.

The outcome of some real estate deals showed that commercial property values for office buildings have nosedived in certain instances.

In December 2023, an 11-story office tower at 303 Almaden Boulevard was bought for slightly under $23.8 million — but that price was 70% below the building’s value when it previously sold, in 2017.

The report also revealed widely varying changes in property values in South Bay cities:

These cities posted the fastest rate of increase in assessed values: Mountain View, up 7.7%; Santa Clara, up 7.3%; and Sunnyvale, up 6.1%. These three cities are hotbeds for residential development. Plus, Google opened a big campus

The municipalities that endured the slowest increases in property values were Milpitas, up 3.8%; Los Gatos, up 4.2%; and Cupertino, up 4.4%.

San Jose property values rose 5%, which, while lagging the overall South Bay results, were still close to the increase for Santa Clara County.

“An increasing number of office buildings are selling for less than assessed value and foreclosures due to delinquent loans are becoming more frequent,” the County Assessor’s Office stated in its report.

Over the next year or two, it’s possible values could rise if

The number of residential transactions declined in the current year compared to the year before, but the average value of the transactions soared, which helped to propel residential values higher.

Santa Clara County’s residential property values are now the highest in the country, according to the County Assessor’s Office report.

“With office vacancy increasing due in part to remote work, and residential sales decreasing, the volatile and unpredictable nature of Santa Clara County real estate causes concern for the future of property values,” County Assessor Larry Stone said.