Exclusive: South San Jose lands biggest new tenant in years

BAE Systems will move hundreds of workers to South San Jose after signing one of the largest leases there in years.

The London-based international defense contractor has leased 161,718 square feet at 6331 and 6311 San Ignacio Ave., Megan Mitchell, a BAE communications official, told me on Monday. The bulk of the workers will move from BAE’s longtime facility at 1205 Coleman Ave. in Santa Clara, a site that is slated to be demolished as the site is redeveloped for a large new office

“The company has had a presence in the area for over 60 years, and it was important to us to maintain our core engineering capabilities in this area,” Mitchell said.

See Also

The deal is a score for San Jose in general and south San Jose in particular, real estate observers said. The city has been trying to lure corporate tenants to the city and balance out its ratio of jobs to housing, which is weighted toward the latter. South San Jose has for years suffered from high vacancy after a building boom there in the late 1990s and early 2000s.

San Jose Mayor Sam Liccardo welcomed news of the deal on Monday, saying there are encouraging signs that the district is starting to gain traction. HGST is ramping up a big expansion at its industrial complex off Cottle Road, and Equinix recently acquired a 34-acre site where it is likely to build a new data center, and builders are adding new homes and retail on the former IBM disk-drive campus. (Next up: A new Costco.)

“We’ve seen some positive news, and its’ emerging as a promising employment center,” said Liccardo, who estimated headcount at BAE at about 500. “It’s been slow going, but there is a recognition by many employers that they’re as tired as their employees are of 90 minutes commutes. Edenvale offers an opportunity to bring the workplace closer to home for thousands of San Jose residents.”

That would be good news for MWest, the landlord in the BAE deal which acquired 6.4 million square feet from Carl Berg’s Mission West Properties Inc. in late 2012, much of it in south San Jose. The company has about 1 million square feet of available space in the area.

“We believe BAE’s decision to locate in South San Jose speaks volumes to the attraction of this growth market’s dynamics,” said Dan Poritzky, managing director with MWest. He hit on
reverse commute, additional housing and retail as a driver.

Still, while there have been some bright spots – such as Barracuda Networks’ leasing 50,000 square feet at MWest’s 5710 Fontanoso Way and Jabil’s expansion into Sobrato’s 30 Great Oaks Blvd. – the area has not seen strong deal activity. Vacancy actually ticked up in the first quarter, statistics from DTZ show.

But Rob Shannon, a senior vice president at CBRE who represented MWest in the BAE Systems deal, said that activity in the area is picking up as vacancy contracts everywhere else in Silicon Valley. Shannon worked with Ben Knight and Vincent Scott on the listing; BAE Systems was represented by Mike Michaels of Cresa.

“We’re seeing the effects of a very tight market,” he said. “You have the pressure of 9 percent vacancy (elsewhere).” Those that make the move, he said, find more to like than cheaper product. “The groups down there love being down there. They don’t want to go anywhere.”

South San Jose boomed in the late 1990s and early 2000s; some developers, like Mission West, developed large campuses that ended up never being filled. The space BAE Systems is taking
became available after a solar company Stion pulled out about 18 months ago.

BAE calls its Silicon Valley presence an “engineering center of excellence” where employees focus on combat vehicle programs for US Army and Marine Corps. The company also has a ship repair facility in San Francisco. The new South San Jose site is mostly office space for engineers.

The company’s roots here actually stretch back more than a century, and the move represents the end of an era. In the 1940s, FMC got into defense contracting through its United Defense Industries Inc. division. Its work locally included development of the Bradley Fighting Vehicle. BAE Systems acquired United Defense in 2005.

Its former home in Santa Clara, near the Mineta San Jose Airport, is in line to be transformed into Coleman Highline, a large office project being developed by Hunter/Storm LLC.

Get the business scoops you need to start the day with our free Morning Edition email.

Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.