Industry in Gilroy a tough sell

Gilroy
– City leaders say industrial development is integral to
Gilroy’s continuing expansion, but a sputtering economy and an
appealing development conditions in San Jose may make South County
a tough sell for the area’s commercial real estate agents.
Gilroy – City leaders say industrial development is integral to Gilroy’s continuing expansion, but a sputtering economy and an appealing development conditions in San Jose may make South County a tough sell for the area’s commercial real estate agents.

“It’s going to be hard to compete with San Jose because they have such a large work base, but Gilroy has a great opportunity,” Councilman Craig Gartman said. “We spent a lot of time and effort making the place attractive for retail and the same effort needs to be made for industrial.”

Over the last few years, Gilroy has enjoyed an explosion of retail growth but industrial development has lagged. A number of companies have moved to town, but Gilroy is overbuilt, according to Mark Sanchez, vice president of sales at Colliers International in Gilroy. Of the 94,000 square feet available in two of Colliers’ buildings on Murray Avenue, only 27,000 are leased.

“Large office space is overbuilt, however Gilroy is a good alternative to San Jose for large agencies and non-profits,” Sanchez said. “In the past, Gilroy has been dependent on Silicon Valley as far as lease rates and property values. At the moment, our prices are comparable or even higher because we have created our own marketplace.”

The city is being marketed to developers and industry as an alternative to San Jose, an area with an educated and talented workforce, a lower cost of living and a lot less traffic. Gartman said the number one lesson he took from the late Bill Lindsteadt, who died in January after nine years as director of the Economic Development Corp., and who is credited with driving Gilroy’s growth, is that if you can offer businesses what they want, they will come.

“From an industrial point of view, people are generally looking for land where they can build their kind of building,” he said.

That’s why city officials have high hopes for land east of Gilroy off Pacheco Pass Highway. The city’s general plan includes 440 acres of developable land directly east of the Outlets, and later this year, a Milpitas developer will break ground on the McCarthy Ranch. The ranch includes an 80-acre business park that will support as many as one million square feet of office space.

It will be years, however, before those building are erected, Joe McCarthy Jr. said Wednesday. The first phases of the project are more of the same for Gilroy: Fast food outlets and gas stations.

“We’re unlikely to attract high-end computer manufacturing or anything like that for a couple of years,” McCarthy said.

Those are exactly the kind of jobs that city leaders want to bring to Gilroy. They tend to offer higher wages and have potential for exponential job growth. They are the same jobs, though, that traditionally migrate to the Peninsula and San Jose, and that city has a lot to offer industrial tenants.

Nearly 20 percent of San Jose’s downtown office space is vacant; rents there are at a 10-year low. And companies looking for customized space have a plethora of new developments to choose from.

In addition to the Coyote Valley Specific Plan, which imagines a live-work community of 25,000 homes, 50,000 jobs and 80,000 residents, San Jose hopes to bring 25,000 jobs and 70,000 people to the North First Street corridor, and 30,000 jobs and 10,000 housing units to downtown. San Jose is also pushing forward a bio-tech incubator in Edenvale, and developing new housing and retail jobs in Evergreen.

“The competition with San Jose is obviously a big challenge,” said Gilroy Mayor Al Pinheiro. “But we have a climate in our city that is business-friendly and we find innovative ways to incentivize businesses to come here. We’ve done a great job with retail. Now we need to look to the next level.”

The city has developed a number of programs that waive upfront development fees in exchange for a guarantee that a business will generate a certain amount of tax revenue or provide a certain number of jobs. Pinheiro said the city is looking at ways to streamline the permitting process and market the city’s charms to high-tech businesses.

Gartman said a good place to start is with the owners and high-ranking executives at small businesses, who may be more amenable to moving to Gilroy. It will take a lot longer, he said, for industrial development to match the city’s retail successes.

“This is not something that’s going to happen overnight because it takes the commitment of the governing body,” Gartman said. “I think it’s necessary for the chamber of commerce, the EDC and the city council to sit down and work out a strategy.”

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