San Jose cuts taxes in an effort to reduce downtown office and store vacancy rates

San Jose Mayor Matt Mahan recently discussed his office’s incentive policy aimed at attracting more office workers to the downtown area. On October 1, the San Jose City Council unanimously approved a new policy that will allow new businesses looking for a minimum of 2,500 square feet of office space to be exempt from paying for at least five city parking permits for the first two years. To qualify, these businesses must commit to a lease of at least four years, starting from January 2025 to December 2026.

Several representatives from local organizations, including Republic Services, San Jose Jazz, and the Sharks, expressed their support for this initiative.

Tomoyo Yoshinaga, owner of Haberdasher and co-owner of Cash Only, shared her enthusiasm at the council meeting. She praised the city’s innovative approach to encouraging business investment downtown and announced plans to open a third bar, underscoring that an increase in foot traffic would likely lead to higher consumer spending.

Ted McMahon, Investment Director at Bayview Development Group, suggested extending the parking permit exemption from two years to seven, arguing that this change would better reflect typical commercial lease lengths.

City officials report that more than three million square feet of office space are currently vacant in downtown San Jose. Councilmember Pam Foley highlighted the importance of motivating existing tenants to renew and expand their leases.

Russell Hancock, President and CEO of the Silicon Valley Leadership Group, noted that spaces of at least 2,500 square feet are typically adequate for around 12 employees. He emphasized this moment as an opportunity for a new urban model, stating, “Cities need to be rich, mixed-use, and integrate all elements.”

Small businesses in downtown San Jose have been facing challenges due to the rise of hybrid working models and remote work trends. Mayor Mahan presented the incentive policy as part of his broader efforts to revitalize the downtown workforce, which includes new murals, restaurants, and dessert shops.

Reflecting on the potential of this initiative, Mahan stated, “The more we can incentivize new small businesses to move downtown, the more likely we are to see another company, like Zoom, emerge as an ‘anchor employer’ in San Jose.”

He further remarked, “Investing in small businesses is truly a bet on the future of our city.”

Yacanex Posadas, owner of the Yacanex business group in Gilroy, who helps small businesses develop in downtown San Jose and beyond, offered practical advice for those who may not require 2,500 square feet. He suggested that collaborating with other small business owners to share office space and costs could be a viable solution.

Posadas emphasized that by banding together to share resources, businesses can access larger, superior spaces. “Maybe you’re an insurance agent, others are in real estate, and some handle taxes,” he explained. “While they may not typically collaborate, they all share a demand for office space. We shouldn’t view this situation in black and white.”