San Jose considers tax breaks to fill downtown offices

City leaders want to give new businesses a tax break and parking benefits to lure them into downtown.

A downtown office incentives policy is slated to pass at the City Council Tuesday in an effort to bring not just big corporations into the city’s core, but also small businesses. Under the proposed policy, any new business looking for a minimum of 2,500 square feet would qualify — office space about the size of a four-bedroom home. Businesses who lease space for four years or more between January 2025 and December 2026 will be exempt from paying the city business tax and fees for at least five parking permits for two years.

Downtown San Jose’s 11 million square feet of office space has a 31% vacancy rate, according to city officials.

Yacanex Posadas, who owns Yacanex Business Group in Gilroy and helps grow small businesses in places like downtown San Jose, said he’s supportive of the city’s new policy and sees the parking benefits as an especially attractive benefit for businesses wanting to lease in this section of the city.

“If I’m working from home and thinking about making that leap into offices, I have to factor in the cost of one month’s rent, maybe two depending on the landlord along with other expenses. But if I now have to worry less about parking, that could definitely make a difference,” Posadas told San José Spotlight.

Office spaces of at least 2,500 square feet are typically large enough for about 12 employees, Joint Venture Silicon Valley President & CEO Russell Hancock said.

Office vacancies in downtown San Jose are still at record highs years after the pandemic, and the city’s proposed policy of tax breaks and free parking could incentivize more businesses to sign leases and employees to spend more time in an office post-pandemic.

Hancock described the situation in downtown as a new paradigm.

“Here’s the city saying, ‘Ok, how can we find an opportunity, given these new realities, to look at small and medium-sized businesses and see if they have any interest in putting some roots down,'” Hancock told San José Spotlight. “Cities have to be rich, mixed-use and combine all the (elements).”

But small businesses continue to struggle in downtown, with office workers on hybrid schedules or remote. The effect has been noticeable.

Mayor Matt Mahan described the office incentives policy as his latest effort in bringing more office workers to downtown, along with new murals, restaurants and dessert stops.

A business with 50 employees can save $40,000 over the next two years under the city’s latest policy, Mahan said.

“Because although downtown is back and better on nights and weekends, we’re still struggling with a high vacancy rate in our office buildings. It may not seem like a big problem — but for our small businesses who rely on the lunch crowd and the happy hour crew, it can mean the difference between success and failure,” he said in a recent newsletter.

Mahan was not immediately available for comment.

Posadas said small businesses that might not need as much as 2,500 square feet of space should consider partnering with fellow small business owners to split space and rent costs.

The more businesses that get together to share offices and expenses, he said, the larger and better space they can afford.

“Maybe you’re an insurance agent, someone else is in real estate and another person works with taxes — they don’t work together but they need office space,” Posadas told San José Spotlight. “We shouldn’t be just looking at this black and white.”

The San Jose City Council meets Tuesday at 1:30 p.m. Learn how to watch and participate.

This story will be updated.

Contact Vicente Vera at [email protected] or follow @VicenteJVera on X, formerly known as Twitter.