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 — 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.

“This is good news for Santa Clara County,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy. “The increase in values helps support increased revenue for local government services.”

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 developers begin construction on projects in downtown San Jose.

Housing high rises and Google’s transit village in the downtown are among the projects that could provide a big boost for local property values.

Google is reviewing the timeline for a transit-oriented mixed-use neighborhood on the western edges of downtown San Jose near the Diridon train station and the SAP Center.

Google is considering a residential development to kick off the transit village, known as Downtown West. The tech titan’s development ally discussed the housing project recently with one or more San Jose city officials.

San Fernando Street area of Google's proposed Downtown West transit-oriented neighborhood in downtown San Jose, showing buildings in the project near a light rail line and existing building, concept.
San Fernando Street area of Google’s proposed Downtown West transit-oriented neighborhood in downtown San Jose, showing buildings in the project near a light rail line and existing building, concept. (SITELAB urban studio, Google)

Google is pondering an affordable housing project at the site of a one-time hardware store along West San Carlos Street.

Development in the footprint of the Google transit village could propel property values higher in the general vicinity.

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.

“While commercial property values are unsteady, residential properties are carrying the day,” Staedler said.

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% — all hotbeds for residential development. Google also opened a big campus in Mountain View near the search giant’s headquarters.

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 among 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.

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.