Market Study & Business Opportunities Assessment
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Market Study & Business Opportunities Assessment Town of Los Gatos Submitted by BAE Urban Economics August 12, 2011 1 bae urban economics August 12, 2011 Ms. Jessica von Borck Economic Vitality Manager Town of Los Gatos P.O. Box 949 Los Gatos, CA 95031 Dear Ms. Von Borck: On behalf of BAE Urban Economics, Inc., we are pleased to submit the enclosed North 40 Market Study and Business Development Strategy for the Town of Los Gatos pursuant to Purchase Order Contract #20110317. We have enjoyed working with you and your staff colleagues as well as the North 40 Advisory Committee, Planning Commission, and Town Council on this exciting opportunity to enhance the Town’s economic vitality through the development of the North 40 Specific Plan area. Sincerely, David L.R. Shiver Raymond Kennedy Principal Vice President San Francisco Sacramento Los Angeles Washington DC New York City 1285 66th Street 803 2nd Street 5405 Wilshire Blvd. 1346 U Street NW 121 West 27th Street Second Floor Suite A Suite 291 Suite 403 Suite 705 Emeryville, CA 94608 Davis, CA 95616 Los Angeles, CA 90036 Washington, DC 20009 New York, NY 10001 510.547.9380 530.750.2195 213.471.2666 202.588.8945 212.683.4486 www.bae1.com Table of Contents Executive Summary ........................................................................................................ 1 Site Description and Location ................................................................................................... 1 Demographic and Economic Overview .................................................................................... 1 Retail Market Assessment ......................................................................................................... 2 Office Market Assessment ........................................................................................................ 6 Hotel Market Assessment ......................................................................................................... 7 Conference/Meeting Space Market Assessment ....................................................................... 8 Strategies for North 40 Development ........................................................................................ 8 Site Description ............................................................................................................. 13 Site Location .................................................................................................................. 15 Demographic Overview ................................................................................................ 19 Definition of Retail Trade Area vs. Market Area .................................................................... 19 Population and Household Trends .......................................................................................... 24 Household Characteristics ....................................................................................................... 26 Employment Trends ................................................................................................................ 28 Retail Market Assessment: Existing Retail Real Estate Conditions ......................... 33 Retail Real Estate Market Conditions ..................................................................................... 33 Overview of Los Gatos and Retail Trade Area Retail Nodes ................................................. 34 Retail Market Assessment: Sales and Leakage Analysis .......................................... 45 Estimated Retail Sales in Los Gatos and the RTA by Major Retail Category ........................ 45 Retail Sales by Major Retail Category in Los Gatos, Santa Clara County, and California .... 49 Los Gatos Taxable Retail Sales by District ............................................................................. 54 Leakage and Injection Analysis for Los Gatos and the Retail Trade Area (RTA) .................. 59 Retail Market Assessment: Summary ......................................................................... 71 Existing Conditions ................................................................................................................. 71 Leakage and Injection Analysis .............................................................................................. 74 Potential for New Retail Development in Los Gatos .............................................................. 75 Office Market Assessment ........................................................................................... 77 Office Inventory ...................................................................................................................... 77 Office Market Trends .............................................................................................................. 77 Office Employment Trends ..................................................................................................... 80 Office Demand Analysis ......................................................................................................... 82 Hotel Market Assessment ............................................................................................. 89 Existing Supply ....................................................................................................................... 89 Planned and Proposed Competition ........................................................................................ 91 Performance Trends ................................................................................................................ 93 Meeting Space Market Assessment ............................................................................ 97 Hotel Meeting Space ............................................................................................................... 97 Day-Use Meeting Facilities ................................................................................................... 102 Demand from Major Employers ........................................................................................... 107 Opportunities & Strategies for Development ........................................................... 109 Overview ............................................................................................................................... 109 Retail Development Opportunities ........................................................................................ 110 Retail Development Strategies .............................................................................................. 114 Office Development Opportunities ....................................................................................... 116 Hotel Development Opportunities ........................................................................................ 118 Conference and Meeting Space Development Opportunities ............................................... 119 Prioritizing Opportunities ...................................................................................................... 121 Appendices .................................................................................................................. 125 Executive Summary Site Description and Location The North 40 site is a highly strategic location in the West Valley for new commercial development: − The North 40 site is located at the intersection of Highways 85 and 17, making it a highly visible and desirable location for a variety of uses, particularly for retail, hotel, and meeting/conference facilities. − The North 40’s location at the crossroads of the West Valley’s freeway system makes it easily accessible to many of the region’s major hubs of activity, including major employers such as Apple Computer, Netflix, and cultural attractions in downtown San Jose. Demographic and Economic Overview While Los Gatos itself is a small community, the Town and the Retail Trade Area (RTA) that it is situated in have a significant concentration of high-income households and high rates of homeownership that retailers and hotel operators will likely find attractive –despite modest future population and household growth: − The Town of Los Gatos had a population of 29,413 in 2010 and experienced limited population or household growth in the last decade. − Los Gatos is characterized by relatively small households, a high rate of home ownership, and high incomes. The median household size for Los Gatos was 2.35 persons per household in 2010 compared to the Bay Area average household size of 2.69. The Town’s median annual household income is over $115,000, significantly higher than the $79,000 figure for the Bay Area. Approximately 63 percent of occupied housing units are owner-occupied, in contrast to just over 56 percent for the Bay Area. − While not at the levels of the Town, the Retail Trade Area (RTA) with a 2010 population of 606,000 also has high incomes and high rates of home ownership. The median household income was just over $94,000 in 2010. The RTA’s homeownership rate was 61 percent of occupied housing units. The RTA represents population and buying power within a 10 minute drive of the North 40 site. − Both Los Gatos and the Retail Trade Area will experience modest population growth from 2010 to 2020. Based on the Town’s recently adopted General Plan, the Town is North Forty Specific Plan Market Study and Business Development Strategy Page 1 of 150 slated to add approximately 3,200 residents over the decade, based in part on the potential