10 Staff Report - North Forty Specific Plan AreaCOUNCIL AGENDA REPORT
DATE: June 2, 1999
TO: MAYOR AND TOCOUNCIL
FROM: TOWN MANAGER
SUBJECT:
MEETING DATE: 6/07//99
ITEM NO.
ACCEPT REPORT REGARDING ECONOMICS RESEARCH ASSOCIATES UPDATED
MARKET STUDY FOR THE NORTH FORTY SPECIFIC PLAN AREA.
RECOMMENDATION:
Accept Report and referral to the General Plan Committee and Planning Commission.
DISCUSSION:
On December 7, 1998, the Town Council authorized the Town Manager to execute a contract for Economics Research
Associates (ERA) to update the 1991 Final Market Study and Business Development Strategy Report for the North Forty
Specific Plan Area. ERA completed the Final Report Market Study on schedule and within the budget authorized by
the Council. Attachment #1 is a copy of the Market Study provided by the Planning Director for the Town Council to
review prior to the completion of the North 40 Specific Plan Administrative Draft. Council should accept the report and
refer the report to the General Plan Committee and Planning Commission for review in conjunction with their analysis
of the upcoming Administrative Draft.
ENVIRONMENTAL ASSESSMENTS:
Is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
None.
Attachments:
ERA Final Report: Market Analysis in Support of the North 40 Specific Plan
LEB:EO
N:\DEV\CNCLRPTS\ERAUPDTE.TC3
PREPARED BY: LEE E. BOWMA
PLANNING DIRECTOR
Reviewed by: flAttorney N Finance
Revised: 6/2/99 11:59 am
Reformatted: 10/23/95
ERA
Economics Research Associates
Final Report
MARKET ANALYSIS IN SUPPORT
OF THE NORTH 40 SPECIFIC PLAN
Prepared for
Town of Los Gatos
April 1999
Prepared by
Economics Research Associates
ERA Project No. 12970
388 Market Street Suite 1580
San Francisco, CA 94111 ERA is affiliated with Drivers Jonas
415.956. 8152 FAX 41 5.956.5274 www erasf corn/eras(
Los Angeles San Francisco Diego
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Chicago Dallas WashingtooanLJldn_�g� 1 I
TABLE OF CONTENTS
Section page
I INTRODUCTION I- 1
Project Overview I- 1
II EXECUTIVE SUMMARY II- 1
Market Analysis Conclusions II- I
Land Economics of North 40 Development II- 2
Impact on Existing Businesses II- 3
III LOCAL AND REGIONAL OVERVIEW III- 1
Regional Outlook III- 1
Market Area Description III- 2
Strengths and Weaknesses of the North 40 Site III- 3
IV RETAIL MARKET ANALYSIS IV- 1
Los Gatos' Retail Health IV- 1
Market Area Competitive Supply IV- 3
Retail Demand Forecast IV- 4
V CINEMA MARKET ANALYSIS V- 1
Industry Trends V- 1
Regional Cinema Market V- 2
Future Supply and Cinema Competition V- 4
Cinema Demand Forecast V- 5
VI OFFICE MARKET ANALYSIS VI- 1
Current and Historic Office Demand VI- 1
Office Supply Characteristics and Performance VI- 2
Future Competitive Office Supply VI- 3
Office Demand Forecast VI- 4
VII HOTEL MARKET ANALYSIS VII- 1
Market Area Lodging Revenues VII- 1
Room Rates and Occupancy VII- 2
Competitive Hotel Supply VII- 3
Hotel Demand Forecast VII- 3
VIII FISCAL IMPACT OF LAND USES VIII- 1
Section I
INTRODUCTION
PROJECT OVERVIEW
The Town of Los Gatos requested that Economics Research Associates (ERA)
conduct a market study for the North 40 Specific Plan Area in order to assess the site's
realistic development potential. This project aims to identify ways that the Town can
encourage successful development of the North 40 site by adding to the range of goods and
services currently available to Los Gatos citizens, strengthening the Town's overall fiscal
position, and allowing existing businesses in other areas of the Town to continue to thrive.
ERA conducted a similar study in 1991 which considered the North 40 site as well as the
downtown and Los Gatos Blvd areas.
The conclusions of our analysis and our recommendations for Town action are
summarized up front, in Section II. Section III briefly describes economic and demographic
forecasts for the region and the market area. Sections IV through VII analyze existing and
forecast market support for each development type: retail, cinema, office and hotel uses. For
each use, we discuss both the likelihood of development at the North 40 as well as the
potential impact of such development on existing Los Gatos businesses. The goal of each
analysis is to identify uses, market segments, and scales of development which will blend
well with the Town's current mix. Section VIII ultimately outlines the fiscal implications for
the Town of realistic land use scenarios.
William W. Lee, Senior Vice President, served as project manager for this study.
Robert Stevenson, Associate, assisted in data collection, analysis and report preparation.
Economics Research Associates I-1
Section II
EXECUTIVE SUMMARY
MARKET ANALYSIS CONCLUSIONS
The real estate market analysis, intended as a reality check for the North 40 Specific
Plan, indicates considerable demand for a number of commercial uses for this strategically
located property. No single use is able to dominate because of the following:
• The size of the parcel is substantial, in excess of 40 acres.
• Land values have escalated very quickly in Santa Clara County during the past two or
three years, and land absorption supported by a single use will have difficulty taking
down the entire parcel.
• Multiple uses provide the developers a much better opportunity to design a project
that is more in keeping with the smaller scale character of Los Gatos.
Office
34%
Forecast Land Use Demand
Hotel
8%
Cinema
11%
Retail
47%
The results of the market analysis are summarized in Table II-1. The market analysis
indicates that 55 to 60 percent of the 40.9 acres should be devoted to retail, restaurant and
cinema uses. The approximately 24 acres targeted for these uses could accommodate
250,000 square feet of home furnishings, hardware, building materials, restaurant and
specialty retail types of uses. Possible tenants range from Expo Design Center to Restoration
Hardware. The cinema complex should not be simply another mid market multiplex, like the
Economics Research Associates II-1
Saratoga 14, but should have fewer and larger theaters (possibly six to eight screens) with
very high quality exterior design, decor and furnishings. Pacific Theaters of Hollywood
specializes in the top end of the cinema market and could be a candidate.
The market analysis indicates that the other 40 to 45 percent, or approximately 17
acres, should be planned for office and hotel uses, suggesting 300,000 square feet of office
space developed in smaller buildings over an eight to ten year period and one hotel of
approximately 150 rooms built in the 2003 to 2004 time frame. This combination of uses
best serves the three economic development objectives we used to guide this assignment:
• Reflect the land value interests of the land owners.
• Protect the long term fiscal interest of the Town.
• Minimize the adverse competitive impact on local businesses.
LAND ECONOMICS OF NORTH 40 DEVELOPMENT
The highest and best economic use of this property depends upon one's perspective.
Because of the very high office rents in Los Gatos, office development currently supports the
highest land value. However, the limited depth of the local office market suggests that
devoting all or nearly all of the site to office development would be a high risk strategy.
From the landowners' perspective, the land values supported by the planned development
would rank as follows.
Land Use
Value Range Per SF
Office
$40 to $60
Hotel
$25 to $35
Retail/Restaurant/Cinema
$20 to $30
From the fiscal perspective of the Town of Los Gatos, the land use priorities are very
different; and they rank as follows.
Economics Research Associates II-2
Land Use
Fiscal Balance per Acre
Hotel
$132,000
Retail/Restaurant
$25,000
Cinema
$3,000
Office
($7,000)
IMPACT ON EXISTING BUSINESSES
During 1990-91, meetings of the Commercial Specific Plan Committee, citizens and
local business groups identified a number of issues concerning potential development at the
North 40 site. Input regarding the site's development was carried forward and incorporated
into the guiding principles presented in the Route 85 and Vasona Light Rail Element of the
Town's General Plan. These principles state that commercial development at the site shall:
1) complement rather than compete with existing businesses; 2) provide new services to
residents in the Town; and 3) be designed to maintain the character of Los Gatos,
The North 40's potential competitive impact on existing businesses and its
implications for the Town's character are discussed below. At this stage, without a more
defined development project including the actual tenant mix, a quantitative impact
assessment is premature.
Office Development
• Supports restaurants and shops in the Town.
• Increases demand for local housing and drives up home prices.
• Because of high office rents and low vacancies, existing local office buildings would
likely not suffer very significant adverse impacts from the additional competition.
• Strengthens local hotel demand.
• Can share parking facilities with cinema and other evening uses to improve
development economics.
Economics Research Associates II-3
Hotel Development
• Will likely have minor to moderate competitive impact on the revenue flow to local
hotels.
• Will encourage older and less competitive local hotels to invest in upgrading.
• Will increase local restaurant and retail business volumes slightly.
• Clearly is the best revenue generator for the Town.
Cinema Development
• Will strengthen the evening and weekend trade for local restaurants and specialty
shops.
• Can share parking facilities with office and other primarily day time uses to improve
development economics.
• Will have competitive impact on the existing movie theater in town.
Retail and Restaurant Development
• Market demand exists to support the additional retail and restaurant development.
• Actual competitive impact will depend upon the exact size and tenant mix of the
development project, many local shops and restaurants will benefit but a few direct
competitors could suffer.
Economics Research Associates II-4
(Cummulative Totals)
48
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00
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Land Use
Retail
Home Furnishings
Building Materials
Specialty Retail/Restaurants
Cinema
Office
Hotel
'Acreage
Source: ERA
Section III
LOCAL AND REGIONAL OVERVIEW
This section presents an overview of economic forecasts for the region and the market
area surrounding the North 40 site, as well as a discussion of the site itself. We begin by
presenting a brief overview of local and regional economic conditions. Population, income
and employment growth figures set the stage for analysis of all four development types
considered in this report. We then describe the market area within which new uses at the
North 40 site would compete. We end this section by describing the strengths and
weaknesses of the site itself.
REGIONAL OUTLOOK
Santa Clara County has experienced tremendous job growth during the 1990s, driven
primarily by the computer software industry. The area rebounded strongly after losing nearly
30,000 jobs during the recession of the early 1990s, adding over 150,000 jobs during the past
five years to reach a present total of nearly one million. Growth has averaged over four
percent annually during the latter part of the decade and unemployment has fallen to an
extremely low three percent. Table III-1 presents historical employment figures and future
projections for Santa Clara County estimated by the Association of Bay Area Governments
(ABAG). Job growth rates are expected to decline to more sustainable levels during the
approaching decades, growing at just above one percent annually between 2000 and 2015.
This leveling off is expected in part due to the extreme job growth of the 1990s coupled with
a very tight housing market, rising land costs, and longer and longer commutes to affordable
housing. Population growth in the county has not nearly kept pace with job growth, inducing
growing numbers of workers from outside the Bay Area to commute into Santa Clara County
to work each day.
Despite mounting challenges to continued growth, the area's economy, as described
by the 1999 "Index of Silicon Valley," appears well positioned for continued expansion in the
future. Growth during 1998 has not reached the levels experienced during the previous few
years, but gains remain strong. The number of fast-growing "gazelle" companies (starting
with at least one million dollars in sales and experiencing annual compounded growth of 20
percent for four consecutive years) has continued to increase from 64 in 1997 to 92 in 1998.
Venture capital investments continue to increase, growing by 14 percent in 1998 to reach
Economics Research Associates III-1
S3.3 billion. Research -and -development -related employment remains at three times the
national average, and value added per employee, a measure of productivity, has continued to
increase at about six percent annually during the 1990s.
MARKET AREA DESCRIPTION
Northern Santa Clara County remains the corporate center for many of the older,
established Silicon Valley firms, but many new software and computer network firms are
locating in areas where new campuses can be assembled, such as north San Jose, Milpitas,
and Santa Clara. Los Gatos is located in the West Valley area, where a high proportion of
Silicon Valley executives now reside. Compared with many other parts of the county, limited
land availability in the West Valley has restricted real estate development and employment
growth. Population growth in the area has remained below county -wide levels during the
1990s, and the outlook for future growth appears similar. Tables III-2 and III-3 present
ABAG population and household figures, historic and projected, for Los Gatos and
surrounding communities between 1990 and 2015. Population and household figures for
each jurisdiction include areas within the sphere of influence rather than just incorporated
boundaries.
The "market area" discussed in this report varies according to the types of
development under consideration. People will travel considerable distances to compare
furniture quality and prices, for example, while stopping nearby their home for most groceries
and convenience goods. In general, however, the market area for the North 40 site, with its
immediate access to highways running in every direction, includes the population presented
in Table III-2. The geographic area, lying within six miles of the Highway 85 and Highway
17 interchange, contains a population of over 400,000. The area includes the Town of Los
Gatos and the cities of Campbell, Cupertino, Monte Sereno, and Saratoga. The market area
also includes the western portion of San Jose (approximately 25 percent of the city's total
population), the southern portion of Santa Clara (approximately 20 percent of the
population), and a share of unincorporated areas near Los Gatos. Figure III-1 presents a
map of the market area.
Market area population is expected to grow at about one half of one percent annually
during 2000 through 2015. This represents a significant decrease from the growth rate of one
and one half percent annually during the 1990s. Household growth rates are expected to
remain stable, having increased at about half the rate of population growth during the 1990s--
Economics Research Associates III-2
reflecting increasing household sizes. Household growth is expected to increase faster during
the next fifteen years, compared with population growth, reflecting reductions in household
sizes during the period.
While population and households in the market area will increase slowly, household
incomes will continue to grow dramatically. Table III-4 presents average (mean) income
figures for the market area forecast by ABAG through 2015. From an average income of
over $80,000 in 1995, market area households increased their real earnings nearly two
percent annually during the following years, and they are expected to increase their income
more quickly than the average county household through 2015. Households in the market
area will continue to earn between ten and twelve percent more, on average, than households
in Santa Clara County as a whole. The majority of this earning power is concentrated in the
areas immediately surrounding the North 40 site, Los Gatos itself, Monte Sereno, and
Saratoga. Additionally, possession of stocks and other forms of wealth are likely higher in
the West Valley area than many other parts of Santa Clara County; such wealth is typically
not reflected in income figures.
STRENGTHS AND WEAKNESSES OF THE NORTH 40 SITE
The North 40 site is well located to capitalize on market demand for a variety of land
uses. The site boasts extremely good visibility from both Highway 17 and Highway 85, the
former a growing corridor for traffic commuting east from Santa Cruz and west toward
downtown San Jose, and the latter the main connector through a string of affluent West
Valley communities. Visibility figures prominently in location decisions for destination
retailers, cinema complexes, hotels, and to a large extent even office buildings. The North 40
site also benefits from high levels of accessibility. Freeway offramps at Lark Avenue and
Bascom Avenue service the site from both north and south. Frontage along Bascom Avenue
also establishes the site, both in terms of visibility and access, on one of the principal
thoroughfares in the West Valley area. As a large, relatively undeveloped site, the North 40
represents an increasingly rare commodity in the West Valley area. The North 40 can be
included in a very select group of properties in the area which combine a large developable
area with high visibility and easy regional access.
Location in Los Gatos also enhances the sites marketability. The Town is viewed as
an extremely attractive and safe community, a draw for all of the land uses discussed. The
Town is currently well known as a destination. Its qualities include pleasant, pedestrian -
Economics Research Associates III-3
oriented environments, clusters of specialty shops and restaurants, and other amenities which
are attractive to operators of offices, hotels and cinemas. Overall, the Town itself acts as a
strong incentive for development.
On the other hand, while the North 40 site is situated very near to Los Gatos' many
amenities, as a freeway -side location next to a main arterial, it cannot offer quite the appeal of
downtown and hillside areas. Office space along University Avenue offers a park -like setting
next to the Vasona Reservoir, and downtown hotels offer immediate access to restaurants and
shopping. The North 40 is located close enough to these attractions to benefit the site, but its
main appeal to developers relates to freeway access and visibility.
Economics Research Associates III-4
Table 111-1
NON-AGRICULTURAL EMPLOYMENT IN SANTA CLARA COUNTY, 1990-2015
0 0 0 0 o c c o 0 0 0
C, 00 C` [� -- r- M O
--
o o 0 0 0 0 0 o c
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4 M M M -- kr1 O 4
\ \ \ \ \ \ \ \ \ \
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N N 00
Construction
A
Government
Total Non-Ag. Jobs
Manufacturing and Business Services jobs are counted in Services
High Technology jobs are counted
Source: ABAG Projections 1998, ERA
FIGURE 1II-1: NORTH 40 MARKET AREA
Table III-2
MARKET AREA POPULATION 1990-2015
Change 2000-15
Pop. Avg. Ann.
0 0 0 0 o c c o
N M [� N ,--. Cr,
0 0 0 0 0 0 0 0
0 0 0 0 0 0 0 0
O O O O O 00 O N
4) v'i co, N C w N v'i I-
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Change 1990-00
Pop. Avg. Ann.
o e o 0 0 0 \\
rh 0 0 O O el Cl
N .m Nl O - �O r vO
M O v> O [� O N \O
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Qs
31,068 33,400 35,400 35,700 35,900 36,000
39,194 40,900 43,500 43,800 44,300 44,000
47,447 50,500 54,300 55,400 56,100 56,100
3,900 4,100 4,300 4,500 4,500 4,500
205,430 219,975 241,900 253,700 263,800 269,800
18,734 19,660 20,740 20,980 21,140 21,520
28,873 30,200 32,500 32,900 32,900 33,000
4,535 4,620 5,100 5,370 5,640 5,820
379,180 403,355 437,740 452,350 464,280 470,740
Percent in
Market Area
e o o o 0 0 0
0 0 0 0 kn O O O
O O O O N N O M
y
e
CA
'C
C.
0 L I,.._ 0 izi ea d
Q 6! ,= i/i H U ea L
aC v �. ; �a . -..
G G. = C C L '0
�UUecnci cila
ra
.
r
F
Source: ABAG Projections 1998, ERA
Table 1II-3
MARKET AREA HOUSEHOLDS 1990-2015
Change 2000-15 I
HH Avg. Ann.
M -:r so CT rn N
0 0 0 0 0 0 0 -
O O O O ,n (-.1 O O
00 r1 N N rr1 0
N •-- O kr) v') r7
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Change 1990-00
HH Avg. Ann.
0 0000 0 00
in r7 0 CT O rn
0 0 0 0 -- O O --
r— -- 00 v O -- 0
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1.
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vl
12,863 13,250 13,560 13,820 14,070 14,270
16,609 16,660 17,090 17,560 17,970 18,200
17,992 18,470 19,100 19,650 20,030 20,380
1,336 1,370 1,460 1,540 1,580 1,590
65,804 68,480 72,700 76,938 81,320 83,725
7,333 7,418 7,554 7,702 7,862 8,076
10,346 10,490 10,970 11,180 11,380 11,500
1,391 1,422 1,557 1,683 1,794 1,857
133,674 137,560 143,991 150,073 156,006 159,598
Percent in
Market Area
00000 eo 0
O O O O v-, O O O
O O O O N N O Nl
Sub -area
'O
O d i 6
ci v o o u
v) E a C 7- to C
PI el e
aUUev):ncn
Q
E•
EO•
Source: ABAG Projections 1998, ERA
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�D I--M rD 00 00 M — O _
69 69 69
0000(600,o
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69 64
0
0 0 0 0 0 0 0 0 0 en
7 00 00 0 u-O ▪ ^ N 00 00 .--.
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N N •--• 69 69
69
0 0 0 0 0 0 0 0 0 o
00 O 00 0 0 00 O 0 N
00 Lei 0 M r r 0 M N. ••-•
N,O •-• er r VO r •--• 00 a _
•--• N ._. .-. 69 69
69
0 0 0 0 0 0 0 0 0 o
0 0 0 O coM 0r 0N 000 0
0 00 'f u> M
vO OO O. VD VD Vl C. r 0o
69
\ o
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ier, 69 69
cee
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eel
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Santa Clara
Santa Clara County
0
00
Source: ABAG Projections 1998, ERA
Section IV
RETAIL MARKET ANALYSIS
This section considers the market for retail development at the North 40. We begin
by analyzing Los Gatos' current retail health, opportunities for expanding the Town's range
of retail goods and services, and competition for retail spending from other communities and
from new developments. We ultimately forecast demand at the North 40 site for the range of
goods we consider strategically compatible with the Town's goals and with existing and
projected market conditions.
LOS GATOS' RETAIL HEALTH
Comparison with Retail Sales in the County
Despite dropping off markedly following the Loma Prieta earthquake in 1989 and
remaining below the mark set in that year throughout the recession, retail sales growth in Los
Gatos has nearly kept pace with growth in Santa Clara County. As a percentage of county
sales, the Town has ranged from a high of almost 2.9 percent in 1989 to 2.5 percent in 1990
and 1995, and back up to 2.7 percent in 1997 (see Table IV-1). On average, Town sales
have nearly kept pace despite the fact that the county population has increased at a much
faster rate than that of Los Gatos. Retail sales lagged in Los Gatos during the first half of the
1990s, growing at less than half of one percent annually, while county sales increased by over
three percent per year. During 1996 and 1997, however, the most recent years for which the
California Board of Equalization provides figures, Los Gatos sales increased more rapidly
than the county's, reaching nearly 12 percent annual growth. A portion of this rapid increase
can be attributed to new retail developments in Los Gatos such as Blossom Pavilion on Los
Gatos Blvd. and Soda Works on E. Main.
Comparison with Retail Sales in Nearby Cities
Table IV-2 presents overall retail sales data for Los Gatos and each of the
surrounding market area cities. Comparing total sales in 1990, 1995 and 1997, we see that
Los Gatos retail has performed more successfully than that of its neighbors. Sales growth in
Los Gatos outpaced all surrounding cities throughout the period and allowed the Town to
increase its share of the retail market from 3.8 percent in 1990 to 4.2 percent in 1997. During
Economics Research Associates IV-1
the same period, Santa Clara strongly increased its share and Campbell increased slightly,
San Jose and Saratoga held steady, and Cupertino's share decreased. On a per -capita basis,
Los Gatos retail sales increased more strongly than any surrounding city during the 1990s. In
1997, per -capita spending in the Town remained over 30 percent above per -capita spending
throughout the market area as well as in Santa Clara County as a whole.
Retail Segment Comparison
Los Gatos retail has enjoyed considerable success during the 1990s, and a detailed
look at specific segments reveals few areas where sales are "leaking" into surrounding cities.
Tables IV-3 through IV-7 present taxable sales figures for the following key retail segments:
building materials, home furnishings and appliances, restaurants, apparel stores, and auto
sales. Of these segments, only building materials reveals a significant leakage of sales into
surrounding cities. As later analysis makes clear, Los Gatos also loses out on general
merchandise sales. The general merchandise category includes sales from department stores,
of which there are none in the Town.
Los Gatos' share of the building materials market has declined by nearly 20 percent
since 1990, due in large part to the increased presence of Home Depot stores relatively nearby
in Campbell and San Jose. Building materials sales in Los Gatos have remained
disproportionately low throughout the period, with the Town enjoying less than one third of
the per -capita sales experienced by the market area as a whole. Building materials clearly
presents a future market opportunity for the Town, sales throughout the county have
increased at an average five percent annually during the 1990s while dropping in Los Gatos.
Los Gatos home furnishings and appliances sales have increased rapidly during the
1990s, outpacing sales growth in all surrounding jurisdictions. The Town's market share has
increased slightly during the period. In 1997 Los Gatos experienced healthy per -capita sales
of $553 compared to $475 for the market area. Downtown is beginning to see a
concentration of specialty and designer furniture stores.
Restaurant taxable sales in the Town increased at a rate comparable to the market area
as a whole during the 1990s, and Los Gatos continues to capture a disproportionately large
share of market area sales. Although the Town's market share decreased slightly between
1990 and 1997, on a per -capita basis local restaurants continue to take in nearly double the
average for the market area, more than any surrounding city.
Economics Research Associates IV-2
Los Gatos apparel sales increased at a rate in between those of surrounding cities,
averaging just under two percent growth for the period. The Town slightly increased its share
of market area apparel sales and continues to sell, on a per -capita basis, nearly 30 percent
more than the market area average.
The Town continues to enjoy a strong advantage in auto sales. Local sales growth
outpaced the market area and the county, increasing nearly seven and a half percent annually.
Los Gatos increased its market share between 1990 and 1997. On a per -capita basis, auto
sales for the Town are over three times the average for the market area.
MARKET AREA COMPETITIVE SUPPLY
Numerous retail projects are currently planned or under construction in the market
area, chief among them a massive redevelopment of the Town and Country Mall near
Highways 280 and 880 in San Jose. Table IV-8 presents a list of market area projects and
describes whether they are under construction ("construction"), they are awaiting building
permits with final approvals in hand ("approved"), or they are still undergoing planning
review and have not yet been approved ("pending"). Within Los Gatos, an expansion of the
Old Town development will add 43,000 square feet of space during 1999. The space will be
mainly occupied by apparel stores such as the Gap and Banana Republic. The main
competitive development affecting the North 40 site is the Town and Country Village, a
575,000-square-foot mixed -use project which will replace the existing low -density retail
center built in the 1970s. The project will include some 1,300 housing units over "Main
Street" style shopping and entertainment venues. Most portions of the project will be
completed by the middle of 2001. As the neighboring Valley Fair Mall expands, adding a
new women's apparel wing to the existing mall and moving the Nordstrom's store into a
new, larger building, the combined draw of these new developments will exert considerable
force throughout the market area. The concentration of stores at Valley Fair and Town and
Country will no doubt attract many new visitors to the area. However, the area's congestion
will likely repel some potential visitors as well, particularly the more affluent West Valley
shoppers.
Although the list of specific retailers who will lease space at the redeveloped Town
and Country has not been finalized, many aspects of the development are known. Based on
the concept of an urban village center, the project will include such entertainment draws as
four to eight theater screens focusing on independent, art, and foreign films. Other major
Economics Research Associates IV-3
uses include 80,000 square feet of restaurants and a 200-room hotel. Three large retail
tenants will anchor the project: possibly two apparel stores and one outlet focusing on home
furnishings and accessories. The remainder of space will be used by small shops, including
an emphasis on local retailers, some higher -end national chains, a garden store, and a
specialty grocery.
RETAIL DEMAND FORECAST
By considering all of the information gathered above and combining it with expected
spending growth in the market area, we created a model for future retail demand in Los Gatos
through the year 2015. Table IV-9 presents the results of our analysis by laying out each step
in the process: assessing the current supply of retail space in the Town, estimating future
demand, and translating this growth into supportable square feet of retail space for each sales
category.
Our retail demand forecast begins by assessing total retail spending, by type, in the
market area. With 1997 as the base year, we projected future sales growth by factoring in
population growth and increases in market area income. Next we established the percentage
of market area spending currently captured by retailers in Los Gatos. With 1997 as the base
year we projected forward by considering opportune markets for expansion among Town
retailers. General merchandise and building materials present the strongest potential. They
currently face less competition within the Town itself (and therefore represent less of a threat
to local businesses), and the North 40's highly visible and regionally accessible location close
to concentrated areas of wealth would prove highly attractive to them. Home furnishings and
appliances also represents an opportunity, due in part to the relatively lower concentration of
such retailers in the Town, and the strength of the location. Accordingly, we forecast
increased market capture for these uses in our demand model.
The remainder of the retail demand model translates estimated future annual sales into
supportable building square footages. After calculating the captured amount of spending in
the Town for future years, we used our estimates of local sales per square foot (based on
Urban Land Institute figures for retailers and our own assessment of local sales velocities) to
translate sales into square footages. The total additional square feet supportable in the Town
amounts to nearly 500,000 square feet by 2015, with potential for over 90,000 square feet
among building materials retailers, over 70,000 square feet in home furnishings, and 23,000
square feet in general merchandise.
Economics Research Associates IV-4
Potential home furnishings and building materials destination retailers include
Restoration Hardware, Williams Sonoma, Pottery Barn, and Crate and Barrell. General
merchandisers such as Target's Greatlands would also likely fit well at the North 40. Expo
Design Center, a new home renovation supplier and design consulting service run by the
Home Depot Company, has expressed considerable interest in locating a 90,000 square foot
store at the site.
Economics Research Associates N-5
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Table IV-2
TAXABLE RETAIL SALES COMPARISON: 1990, 1995, 1997
TAXABLE RETAIL SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
264,090
305,880
380,825
3.0%
11.6%
5.4%
Campbell
367,511
420,785
502,790
2.7%
9.3%
4.6%
Cupertino
448,920
458,176
467,702
0.4%
1.0%
0.6%
San Jose
4,602,322
5,261,184
6,090,190
2.7%
7.6%
4.1%
Santa Clara
1,170,164
1,391,331
1,641,841
3.5%
8.6%
5.0%
Saratoga
55,474
55,371
63,812
0.0%
7.4%
2.0%
Market Area
6,908,481
7,892,727
9,147,160
2.7%
7.7%
4.1%
Santa Clara County
10,388,708
12,175,280
14,363,950
3.2%
8.6%
4.7%
SHARES OF THE RETAIL MARKET
Area
1990
1995
1997
Change
1990-95
Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
3.8%
3.9%
4.2%
1.4%
7.4%
8.9%
Campbell
5.3%
5.3%
5.5%
0.2%
3.1%
3.3%
Cupertino
6.5%
5.8%
5.1%
-10.7%
-11.9%
-21.3%
San Jose
66.6%
66.7%
66.6%
0.1%
-0.1%
-0.1%
Santa Clara
16.9%
17.6%
17.9%
4.1%
1.8%
6.0%
Saratoga
0.8%
0.7%
0.7%
-12.6%
-0.6%
-13.1%
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA RETAIL SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$9,653
$10,639
$12,822
2.0%
9.8%
4.1%
Campbell
10,184
11,088
12,777
1.7%
7.3%
3.3%
Cupertino
11,232
10,618
10,440
-1.1%
-0.8%
-1.0%
San Jose
5,884
6,269
6,967
1.3%
5.4%
2.4%
Santa Clara
12,500
14,285
16,402
2.7%
7.2%
4.0%
Saratoga
1,977
1,887
2,085
-0.9%
5.1%
0.8%
Market Area
6,858
7,336
8,176
1.4%
5.6%
2.5%
Santa Clara County
$6,937
$7,634
$8,680
1.9%
6.6%
3.3%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-3
BUILDING MATERIALS SALES COMPARISON: 1990, 1995, 1997
TAXABLE BUILDING MATERIALS SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$5,575
$4,596
$6,510
-3.8%
19.0%
2.2%
Campbell
51,195
100,125
115,583
14.4%
7.4%
12.3%
Cupertino
4,203
4,035
4,989
-0.8%
11.2%
2.5%
San Jose
383,362
395,771
508,274
0.6%
13.3%
4.1%
Santa Clara
67,088
85,764
108,682
5.0%
12.6%
7.1%
Saratoga
n/a
n/a
n/a
n/a
n/a
n/a
Market Area
511,423
590,291
744,038
2.9%
12.3%
5.5%
Santa Clara County
$734,235
$838,043
$1,039,020
2.7%
11.3%
5.1%
SHARES OF THE BUILDING MATERIALS MARKET
Area
1990
1995
1997
Change
1990-95
Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
1.1%
0.8%
0.9%
-28.6%
12.4%
-19.7%
Campbell
10.0%
17.0%
15.5%
69.4%
-8.4%
55.2%
Cupertino
0.8%
0.7%
0.7%
-16.8%
-1.9%
-18.4%
San Jose
75.0%
67.0%
68.3%
-10.6%
1.9%
-8.9%
Santa Clara
13.1%
14.5%
14.6%
10.8%
0.5%
11.4%
Saratoga
n/a
n/a
n/a
n/a
n/a
n/a
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA BUILDING MATERIALS SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$204
$160
$219
-4.7%
17.1%
1.0%
Campbell
1,419
2,638
2,937
13.2%
5.5%
11.0%
Cupertino
105
94
111
-2.3%
9.1%
0.8%
San Jose
490
472
581
-0.8%
11.0%
2.5%
Santa Clara
717
881
1,086
4.2%
11.0%
6.1%
Saratoga
n/a
n/a
n/a
n/a
n/a
n/a
Market Area
522
564
684
1.6%
10.1%
3.9%
Santa Clara County
$490
$525
$628
1.4%
9.3%
3.6%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-4
HOME FURNISHINGS AND APPLIANCES SALES COMPARISON: 1990, 1995, 1997
TAXABLE HF & A SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$11,536
$12,686
$16,431
1.9%
13.8%
5.2%
Campbell
37,280
24,826
24,442
-7.8%
-0.8%
-5.9%
Cupertino
17,975
17,738
22,324
-0.3%
12.2%
3.1%
San Jose
238,692
292,427
304,669
4.1%
2.1%
3.5%
Santa Clara
97,516
140,667
158,326
7.6%
6.1%
7.2%
Saratoga
5,470
4,571
5,764
-3.5%
12.3%
0.8%
Market Area
408,469
492,915
531,956
3.8%
3.9%
3.8%
Santa Clara County
$624,250
$709,483
$753,773
2.6%
3.1%
2.7%
SHARES OF THE HF & A MARKET
Area
1990
1995
1997
Change
1990-95
Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
2.8%
2.6%
3.1%
-8.9%
20.0%
9.4%
Campbell
9.1%
5.0%
4.6%
-44.8%
-8.8%
-49.7%
Cupertino
4.4%
3.6%
4.2%
-18.2%
16.6%
-4.6%
San Jose
58.4%
59.3%
57.3%
1.5%
-3.5%
-2.0%
Santa Clara
23.9%
28.5%
29.8%
19.5%
4.3%
24.7%
Saratoga
1.3%
0.9%
1.1%
-30.8%
16.8%
-19.1%
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA HF & A SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$422
$441
$553
0.9%
12.0%
4.0%
Campbell
1,033
654
621
-8.7%
-2.6%
-7.0%
Cupertino
450
411
498
-1.8%
10.1%
1.5%
San Jose
305
348
349
2.7%
0.0%
1.9%
Santa Clara
1,042
1,444
1,582
6.8%
4.7%
6.1%
Saratoga
195
156
188
-4.4%
10.0%
-0.5%
Market Area
406
458
475
2.5%
1.9%
2.3%
Santa Clara County
$417
$445
$456
1.3%
1.2%
1.3%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-5
RESTAURANT SALES COMPARISON: 1990, 1995, 1997
TAXABLE RESTAURANT SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$41,725
$53,084
$56,849
4.9%
3.5%
4.5%
Campbell
58,924
55,813
68,756
-1.1%
11.0%
2.2%
Cupertino
66,561
75,690
77.625
2.6%
1.3%
2.2%
San Jose
511,073
605,393
708,198
3.4%
8.2%
4.8%
Santa Clara
128,470
164,916
187,695
5.1%
6.7%
5.6%
Saratoga
13,318
15,632
19,131
3.3%
10.6%
5.3%
Market Area
820,071
970,528
1,118,254
3.4%
7.3%
4.5%
Santa Clara County
$1,297,386
$1,552,857
$1,812,731
3.7%
8.0%
4.9%
SHARES OF THE RESTAURANT MARKET
Area
1990
1995
1997
Change
1990-95
Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
5.1%
5.5%
5.1%
7.5%
-7.1%
-0.1%
Campbell
7.2%
5.8%
6.1%
-20.0%
6.9%
-14.4%
Cupertino
8.1%
7.8%
6.9%
-3.9%
-11.0%
-14.5%
San Jose
62.3%
62.4%
63.3%
0.1%
1.5%
1.6%
Santa Clara
15.7%
17.0%
16.8%
8.5%
-1.2%
7.1%
Saratoga
1.6%
1.6%
1.7%
-0.8%
6.2%
5.3%
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA RESTAURANT SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$1,525
$1,846
$1,914
3.9%
1.8%
3.3%
Campbell
1,633
1,471
1,747
-2.1%
9.0%
1.0%
Cupertino
1,665
1,754
1,733
1.0%
-0.6%
0.6%
San Jose
653
721
810
2.0%
6.0%
3.1%
Santa Clara
1,372
1,693
1,875
4.3%
5.2%
4.6%
Saratoga
475
533
625
2.3%
8.3%
4.0%
Market Area
814
902
1,000
2.1%
5.3%
3.0%
Santa Clara County
$866
$974
$1,095
2.4%
6.1%
3.4%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-6
APPAREL SALES COMPARISON: 1990, 1995, 1997
TAXABLE APPAREL SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$12,778
$11,631
$14,464
-1.9%
11.5%
1.8%
Campbell
12,869
20,974
27,055
10.3%
13.6%
11.2%
Cupertino
46,726
40,702
37,723
-2.7%
-3.7%
-3.0%
San Jose
259,242
242,492
259,349
-1.3%
3.4%
0.0%
Santa Clara
30,347
32,768
43,615
1.5%
15.4%
5.3%
Saratoga
1,319
594
753
-14.7%
12.6%
-7.7%
Market Area
363,281
349,161
382,959
-0.8%
4.7%
0.8%
Santa Clara County
$548,977
$657,881
$766,800
3.7%
8.0%
4.9%
SHARES OF THE APPAREL MARKET
Area
1990
1995
1997
Change
1990-95
Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
3.5%
3.3%
3.8%
-5.3%
13.4%
7.4%
Campbell
3.5%
6.0%
7.1%
69.6%
17.6%
99.4%
Cupertino
12.9%
11.7%
9.9%
-9.4%
-15.5%
-23.4%
San Jose
71.4%
69.4%
67.7%
-2.7%
-2.5%
-5.1 %
Santa Clara
8.4%
9.4%
11.4%
12.3%
21.4%
36.3%
Saratoga
0.4%
0.2%
0.2%
-53.1%
15.6%
-45.8%
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA APPAREL SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$467
$405
$487
-2.8%
9.7%
0.6%
Campbell
357
553
688
9.2%
11.5%
9.8%
Cupertino
1,169
943
842
-4.2%
-5.5%
-4.6%
San Jose
331
289
297
-2.7%
1.3%
-1.6%
Santa Clara
324
336
436
0.7%
13.8%
4.3%
Saratoga
47
20
25
-15.5%
10.3%
-8.8%
Market Area
361
325
342
-2.1%
2.7%
-0.7%
Santa Clara County
$367
$413
$463
2.4%
6.0%
3.4%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-7
AUTO SALES COMPARISON: 1990, 1995, 1997
TAXABLE AUTO SALES ($1000s)
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$93,143
$113,259
$153,291
4.0%
16.3%
7.4%
Campbell
19,140
13,227
16,881
-7.1%
13.0%
-1.8%
Cupertino
26,623
20,276
20,507
-5.3%
0.6%
-3.7%
San Jose
751,915
949,775
1,217,703
4.8%
13.2%
7.1%
Santa Clara
362,119
377,141
437,960
0.8%
7.8%
2.8%
Saratoga
2,588
n/d
2,911
n/a
n/a
1.7%
Market Area
1,255,528
1,473,678
1,849,253
3.3%
12.0%
5.7%
Santa Clara County
$1,801,796
$2,151,346
$2,695,909
3.6%
11.9%
5.9%
SHARES OF THE AUTO MARKET
Area
1990
1995
1997
Change
1990-95
_ Percent
Change
1995-97
Percent
Change
1990-97
Percent
LOS GATOS
7.4%
7.7%
8.3%
3.6%
7.9%
11.7%
Campbell
1.5%
0.9%
0.9%
-41.1%
1.7%
-40.1%
Cupertino
2.1%
1.4%
1.1%
-35.1%
-19.4%
-47.7%
San Jose
59.9%
64.4%
65.8%
7.6%
2.2%
10.0%
Santa Clara
28.8%
25.6%
23.7%
-11.3%
-7.5%
-17.9%
Saratoga
0.2%
n/a
0.2%
n/a
n/a
-23.6%
Market Area
100.0%
100.0%
100.0%
0.0%
0.0%
0.0%
PER -CAPITA AUTO SALES
Area
1990
1995
1997
Change
1990-95
Ann. Avg.
Change
1995-97
Ann. Avg.
Change
1990-97
Ann. Avg.
LOS GATOS
$3,405
$3,939
$5,161
3.0%
14.5%
6.1%
Campbell
530
349
429
-8.1%
10.9%
-3.0%
Cupertino
666
470
458
-6.7%
-1.3%
-5.2%
San Jose
961
1,132
1,393
3.3%
10.9%
5.4%
Santa Clara
3,868
3,872
4,375
0.0%
6.3%
1.8%
Saratoga
92
n/a
95
n/a
n/a
0.4%
Market Area
1,246
1,408
1,653
2.5%
8.3%
4.1%
Santa Clara County
$1,203
$1,349
$1,629
2.3%
9.9%
4.4%
Source: California Board of Equalization, California Dept. of Finance, ERA
Table IV-S
RETAIL PROJECT PIPELINE
Description
Status
Location
Size (sqft)
LOS GATOS Redevelopment (Local)
Construction
50 University Ave.
34,000
New mixed -use (Local)
Approved
15089 Los Gatos Blvd.
9,000
SUBTOTAL
43,000
Campbell (None)
Cupertino (None)
San Jose Valley Fair expansion
Construction
Stevens Creek/Hway 17
125,000
(Near Los Gatos) Town & Country redevelopment
Approved
Stevens Creek/Winchester
575,000
New Home Depot
Approved
De Anza/Bollinger
130,000
Safeway Center (Local)
Approved
Hamilton/Meridian
56,000
Stevens Creek Center (Local)
Approved
Stevens Creek/S. Baywood
54,000
Arcadia (retail not yet defined)
Pending
Almaden/Chynoweth
n/a
SUBTOTAL
940,000
San Jose San Ignacio Center (Local)
Construction
Bernal/San Ignacio (Edenvale)
200,000
(Other areas) Canyon Creek Plaza (Local)
Approved
Silver Creek Valley (Evergreen)
50,000
Almaden Oaks Plaza (Local)
Approved
Meridian/Redmond (Almaden)
29,000
Silver Creek Crossing
Pending
Silver Creek/Hway 101 (Edenvale)
228,000
Moitozo Ranch Retail
Pending
N. l st/River Oaks (North)
195,000
Evergreen Village Center (Local)
Pending
Ruby/Cortona (Evergreen)
63,000
SUBTOTAL
765,000
Santa Clara (None)
Saratoga Addition to existing (Local)
Approved
Argonaut Shopping Center
17,000
SUBTOTAL
17,000
Sunnyvale Fry's Electronics
Construction
1077 E Argues Ave.
151,000
Downtown Mall
Pending
2502 Town Center Drive
287,000
SUBTOTAL
438,000
SUBTOTAL - Construction
510,000
SUBTOTAL - Approved
920,000
SUBTOTAL - Pending
773,000
TOTAL
2,203,000
Source: Local governments, ERA
Table IV-9
RETAIL DEMAND FORECAST: MARKET AREA SPENDING
(In $1000s of constant 1997 dollars)
Per -Capita
Spending
Total Spending
1997
1997
2000
2005
2010
2015
Market Area Population
414,728
437,740
452,350
464,280
470,740
Income Growth Adjustment
1.000
1.055
1.120
1.189
1.262
Eating & Drinking Places
$1.268
$525,781
$585,477
$642,201
$699,647
$752,979
General Merchandise Stores
1.436
595,549
663,167
727,418
792,487
852,895
Apparel Stores
0.407
168,764
187,925
206,132
224,571
241,690
Home Furnishings & Appliances
0.655
271,760
302,615
331,934
361,626
389,191
Building Materials & Farm Tools
0.783
324,934
361,826
396,882
432,383
465,342
Auto Dealers & Auto Supplies
2.021
838,211
933,381
1,023,811
1,115,393
1,200,415
Other Retail Stores
2.156
894,233
995,763
1,092.237
1,189,940
1,280,645
COMPARISON SUBTOTAL
7.459
3,093,451
3,444,678
3,778,414
4,116,399
4,430,178
Drug Stores
0.266
110,318
122,843
134,745
146,798
157,988
Service Stations
0.902
374,008
416,473
456,823
497,686
535,623
Food Stores
1.410
584,901
651,310
714,412
778,317
837,645
CONVENIENCE SUBTOTAL
2.578
1,069,227
1,190,625
1,305,979
1,422,801
1,531,256
RETAIL TOTAL
511.305
$4,688,459
$5,220,781
$5,726,594
$6,238,847
$6,714,412
RETAIL DEMAND FORECAST: LOS GATOS CAPTURE OF MARKET AREA SPENDING
Est. Sales
in LG
Percentage of Market Area
1997
1997
2000
2005
2010
2015
Eating & Drinking Places
$56,849
10.8%
10.8%
11.2%
11.0%
11.0%
General Merchandise Stores
751
0.1%
0.5%
1.5%
2.0%
2.0%
Apparel Stores
14,464
8.6%
8.5%
8.2%
8.1%
8.0%
Home Furnishings & Appliances
16,431
6.0%
6.5%
8.5%
9.0%
8.9%
Building Materials & Farm Tools
6,510
2.0%
2.5%
5.0%
5.2%
5.0%
Auto Dealers & Auto Supplies
153,291
18.3%
18.2%
17.8%
17.6%
17.5%
Other Retail Stores
60,487
6.8%
7.0%
7.5%
7.5%
7.5%
COMPARISON SUBTOTAL
251,183
8.1%
8.3%
9.0%
9.1%
9.0%
Drug Stores
13,524
12.3%
12.3%
12.0%
11.5%
1 1.0%
Service Stations
27,075
7.2%
7.2%
7.2%
7.1%
7.0%
Food Stores
99,621
17.0%
16.5%
16.0%
15.5%
14.5%
CONVENIENCE SUBTOTAL
140,220
13.1%
12.8%
12.5%
12.1%
11.5%
RETAIL TOTAL
$448,252
9.6%
9.6%
10.0%
10.0%
9.8%
Source: ERA
Table IV-9 (Cont.)
RETAIL DEMAND FORECAST: ESTIMATED SALES IN LOS GATOS
(In $1000s of constant 1997 dollars)
1997 2000 2005 2010 2015
Eating & Drinking Places
General Merchandise Stores
Apparel Stores
Home Furnishings & Appliances
Building Materials & Farm Tools
Auto Dealers & Auto Supplies
Other Retail Stores
COMPARISON SUBTOTAL
Drug Stores
Service Stations
Food Stores
CONVENIENCE SUBTOTAL
RETAIL TOTAL
$56,849 $63,232 $71,927 $76,961 $82,828
751 3,316 10,911 15,850 17,058
14,464 15,974 16,903 18,190 19,335
16,431 19,670 28,214 32,546 34,638
6,510 9,046 19,844 22,484 23,267
153,291 169,875 182,238 196,309 210,073
60,487 69,703 81,918 89,245 96,048
251,183 287,584 340,029 374,625 400,419
13,524 15,110 16,169 16,882 17,379
27,075 29,986 32,891 35,336 37,494
99,621 107,466 114,306 120,639 121,459
140,220 152,562 163,366 172,857 176,331
$448,252 $503,377 $575,322 $624,443 $659,578
RETAIL DEMAND FORECAST: LOS GATOS SALES PER SQUARE FOOT
1997 2000 2005 2010 2015
Eating & Drinking Places
General Merchandise Stores
Apparel Stores
Home Furnishings & Appliances
Building Materials & Farm Tools
Auto Dealers & Auto Supplies
Other Retail Stores
COMPARISON SUBTOTAL
Drug Stores
Service Stations
Food Stores
CONVENIENCE SUBTOTAL
RETAIL TOTAL
$350 $350 $350 $350 $350
250 250 250 250 250
260 260 260 260 260
220 220 220 220 220
200 200 200 200 200
n/a n/a n/a n/a n/a
275 275 275 275 275
254 254 249 248 249
280 280 280 280 280
350 350 350 350 350
370 370 370 370 370
355 355 355 355 354
$313 $311 $302 $300 $300
Source: ERA
Table IV-9 (Cont.)
RETAIL DEMAND FORECAST: TOTAL SUPPORTABLE SPACE IN LOS GATOS
1997 2000 2005 2010 2015
Eating & Drinking Places
General Merchandise Stores
Apparel Stores
Home Furnishings & Appliances
Building Materials & Farm Tools
Auto Dealers & Auto Supplies
Other Retail Stores
COMPARISON SUBTOTAL
Drug Stores
Service Stations
Food Stores
CONVENIENCE SUBTOTAL
RETAIL TOTAL
162,426 180,662 205,504 219,889 236,650
3,003 13,263 43,645 63,399 68,232
55,631 61,437 65,011 69,963 74,366
74,686 89,409 128,247 147,938 157,445
32,550 45,228 99,220 112,420 116,336
n/a n/a n/a n/a rva
219,953 253,467 297,883 324,529 349,267
385,823 462,805 634,007 718,248 765,646
48,301 53,963 57,748 60,292 62,067
77,357 85,674 93,975 100,959 107,125
269,246 290,449 308,935 326,052 328,266
394,904 430,086 460,657 487,303 497,458
943,153 1,073,553 1,300,168 1,425,440 1,499,753
RETAIL DEMAND FORECAST: ADDITIONAL SPACE SUPPORTABLE
1997-00 2000-05 2005-10 2010-15 Total
Eating & Drinking Places
General Merchandise Stores
Apparel Stores
Home Furnishings & Appliances
Building Materials & Farm Tools
Auto Dealers & Auto Supplies
Other Retail Stores
COMPARISON SUBTOTAL
Drug Stores
Service Stations
Food Stores
CONVENIENCE SUBTOTAL
RETAIL TOTAL
18,236 24,843 14,385 16,761 74,225
10,261 30,382 19,754 4,833 65,229
5,806 3,574 4,952 4,403 18,735
14,723 38,838 19,691 9,508 82,759
12,678 53,992 13,199 3,916 83,786
n/a n/a n/a n/a n/a
33,514 44,416 26,646 24,738 129,314
76,982 171,202 84,241 47,397 379,823
5,662 3,785 2,544 1,775 13,765
8,317 8,301 6,984 6,165 29,767
21,203 18,486 17,117 2,215 59,020
35,182 30,571 26,645 10,155 102,553
130,400 226,615 125,272 74,314 556,601
Source: ERA
Section V
CINEMA MARKET ANALYSIS
This section examines market support for a cinema complex at the North 40 site. We
begin by providing an overview of current trends in the cinema industry. Next we consider
Santa Clara County cinemas and focus on the strength of current cinema demand in the
relevant market area. We complete our analysis by projecting future demand against likely
competitive supplies and ultimately determining whether support exists for a new cinema
complex at the North 40.
INDUSTRY TRENDS
The U.S. cinema industry has demonstrated impressive growth in the last decade.
From 1986 through 1996, the number of screens in operation increased from approximately
22,000 to over 28,000, a 27 percent change. Admissions revenues have increased from
approximately $3.8 billion to over $5.8 billion, a 53 percent change over the time period.
Approximately half of this growth is attributable to increasing cinema visitation, while the
remainder is attributable to increasing ticket prices. New, higher quality seating and sound
systems have played a large part in attracting growing numbers of viewers to theaters.
As geographical markets mature and become increasingly competitive, the U.S.
cinema industry is undergoing a major transition. The most fundamental recent change in the
U.S. cinema industry has been the emergence of state-of-the-art, multi -screen cinema
complexes, known as "multiplexes." This trend has caused an increase in the average
number of screens per location from approximately 3.5 in 1986 to approximately 4.8 in 1996.
This increasing average number of screens per location suggests that although many one- and
two -screen theaters have remained viable, multiplexes (often with between 10 and 30
screens) have predominated among new projects.
Cinema multiplexes are a fairly standard product. They typically include 12 to 24
screens, high -quality digital sound, steep, stadium -style seating (to allow clear views of the
screen) and comfortable, high-backed seats. Because their size requires that they draw from a
larger trade area, these new complexes need convenient regional access, public transit access
if possible, and ample parking. Cinema multiplexes offer several advantages over traditional,
one- or two -screen cinema facilities:
Economics Research Associates V-I
• Increased market attraction created by the concentration of many movie choices at
one location.
• Ability to schedule movies in different size theaters relative to their attendance.
• Ability to schedule "blockbusters" in several theaters to offer greater choice of
starting times and decrease the likelihood of turning away audiences.
• Improved efficiency in labor utilization.
• Improved efficiency in the use of common areas such as lobby space, restrooms
and parking spaces.
As a result of these advantages, multiplexes have siphoned existing demand away
from more traditional movie theaters in many locations.
REGIONAL CINEMA MARKET
San Francisco is the hub of one of the largest regional cinema markets in the United
States. The Bay Area is the fourth largest regional market in terms of box office revenue,
surpassed only by Los Angeles, New York, and Chicago, respectively. Table V-1 presents
the Bay Area's position among the 10 largest regional cinema markets in the country. The
Bay Area market, along with New York, experiences higher average revenues per screen than
any other U.S. market. At over $350,000, Bay Area theaters bring in nearly 40 percent more
revenue per screen on average than most other large U.S. markets. As such, the area has
figured prominently in cinema industry expansion plans, and many new multiplexes have
been built in recent years to take advantage of overflowing demand.
LOCAL CINEMA MARKET
Cinemas potentially draw from an extremely broad area, and with its high visibility
and freeway access in every direction, the North 40 site would compete for viewers
throughout a large portion of Santa Clara County. We consider the main competitive area to
consist of the market area described in Section III, which includes areas within six miles of
the North 40 site. For purposes of understanding the larger cinema market, we will first
discuss Santa Clara County as a whole. Table V-2 lists the cinemas currently operating in
Santa Clara County, excluding the southernmost cities of Morgan Hill and Gilroy. Figure V-
1 provides a map of cinema locations.
Economics Research Associates V-2
1998 box office revenues and estimated admissions for most cinemas in the county
are presented in Table V-3. In order to better describe the market and compare the
performance of theaters, we divide the existing supply into individual segments: 1)
"mainstream" theaters principally showing first -run films in a multiplex setting, 2) smaller
theaters focusing on art and foreign films, and 3) discount theaters showing second -run films
at lower prices. Mainstream theaters account for 126 of a total 153 screens in the county.
There are 13 screens showing mainly art and foreign films, and another 14 screens in
discount theaters.
Screen revenues vary dramatically among theaters, although in general, mainstream
theaters bring in higher box office revenues than the other types. Mainstream theaters in
Santa Clara County averaged just over $450,000 per screen in 1998, while art/foreign screens
brought in about $163,000. Figures are not available for discount theaters, although their per -
screen revenues would be expected to fall below full -price theaters.
Although many older, established theaters have continued to enjoy success in the area,
two new multiplex cinemas have recently come online and taken a large share from virtually
every segment of the market. The impact of Santa Clara's 20-screen Mercado complex and
San Jose's 14-screen Saratoga theaters, both completed during the middle of 1997, has been
dramatic. Table V-4 presents 1997 and 1998 box office revenues for most local theaters and
clearly demonstrates widespread shifts in attendance patterns. During their first complete
year of operation, the two new multiplexes enjoyed a 30 percent market share. Revenues for
other theaters dropped by an average 15 percent between 1997 and 1998. Importantly, the
impact of these new multiplexes cut across all theater types, reducing returns in both
art/foreign theaters as well as mainstream venues. Another important point is the large
degree to which this influx of new screens induced additional demand in the area. Although
returns among most previously existing cinemas dropped, overall box office returns for the
area rose by over 13 percent —growth which must in part be attributed to the draw of new
state-of-the-art facilities.
Focusing more closely on the competitive area for the North 40, Table V-5 presents
1998 revenues for market area theaters. The market area includes many theaters near
downtown San Jose, but for the most part they are fairly evenly distributed throughout the
area. Average returns per screen among mainstream theaters in the market area are slightly
lower than for such theaters in the county as a whole, but at $417,000 they remain well above
Economics Research Associates V-3
average returns regionally and nationally. These high revenues indicate likely support for
additional mainstream screens in the market area.
FUTURE SUPPLY AND CINEMA COMPETITION
Within the six -mile market area, a new multiplex project at the redeveloped Town
and Country Mall is currently planned. This project has yet to be defined specifically, but
Town and Country reports that it will likely contain eight screens and that it will focus on art
and foreign films. The project should be completed by 2001. Regardless of the specific film
offerings, which could easily be shifted toward more mainstream fare over time, we consider
this development a new competitor among multiplex cinemas. As a new, state-of-the-art
complex, the Town and Country development will both add to the multiplex supply and
present considerable competition for smaller art -house theaters such as the Los Gatos
Cinema.
Within Santa Clara County, but just beyond the six -mile market area, a new 20-screen
AMC complex has been approved to replace the Sunnyvale Six theaters. The project will be
completed in the summer of 2000. As with other new multiplex developments in the area,
the impact of this project will be felt throughout the county.
In terms of film offerings, the division between art -house and mainstream multiplex
will continue to blur. The influx of new screens in 1997 brought by AMC's Mercado and
Saratoga theaters impacted both mainstream and art -house cinemas alike. The widespread
impact of new multiplexes results from their superior facilities as well as from their
expanding ranges of offerings. Companies such as AMC are seeking to extend their appeal
to art -house crowds as well as traditional mainstream audiences. In September 1998, in an
attempt to test the opportunities offered by such a move, AMC shifted the Sunnyvale Six
from mainstream movies to independent, art and foreign films. Based on the high incomes
and education levels in the County, especially in the West Valley area including Los Gatos,
AMC views the prospects for art and foreign film venues very favorably. The company
considers the market for independent films under -served at present. Although the experiment
was repealed in Sunnyvale after three months, as well as in three other locations across the
country, the AMC has indicated that it will continue to strive towards offering a broader
range of films. According to Jack Nyblom of Camera Cinemas, operator of the Los Gatos as
well as other local art -house theaters, multiplexes are capable of showing many of the same
films that smaller venues have traditionally played.
Economics Research Associates V-4
The existing Los Gatos Cinema will be adversely impacted by new cinema venues of
all types in the market area. Competition for art and foreign films from the Town and
Country redevelopment will be considerable, as many theater -goers prefer newer facilities
and sound systems. According to Camera Cinemas, the influx of new screens in 1998
caused the Los Gatos theater to lose money for the first time. Cinema development at the
North 40 would likely have a considerably negative impact on the Los Gatos theater.
However, new cineplex developments in other areas could prove just as damaging.
CINEMA DEMAND FORECAST
Demand for mainstream cinema in the market area will continue to grow in coming
years as the population rises, incomes continue to increase, and the number of workers in the
area expands further. Table V-6 presents an overview of forecast demand for Santa Clara
County as well as for the smaller market area. Our estimates are based on population growth
and income -induced increases in per -capita films viewed. For the county as a whole we find
market support for an additional 36 mainstream screens at present, with the figure dropping
to 23 additional screens in 2000 with the completion of the enlarged Sunnyvale multiplex.
Overall demand in the county will support an additional 37 screens, beyond the currently
existing and planned supply, by the year 2015.
Within the market area, where per -capita film viewing is somewhat higher than in the
county, we find that demand can support an additional 12 mainstream screens at present, and
following the completion of the Town and Country Village theaters, an additional 11 screens
by the year 2005. With the pace of new theater development quickening, prospects for one
additional multiplex being built in the area are high, and such an addition could tap most
remaining demand in the market area. Barring such a development, however, the North 40
site is well positioned to take advantage of current and projected demand. Support for
additional screens will still remain following completion of the Town and Country Village.
A high end six- to eight -screen cinema project with one plush, larger auditorium and
elaborate decor would be well -suited for the North 40 site. With an extremely accessible
location and high visibility, the site would be able to draw from both the expanding
residential market to the south along Highway 85 as well as the very affluent communities
along Highway 85 to the north.
Economics Research Associates V-5
LARGEST REGIONAL CINEMA MARKETS IN THE UNITED STATES
Screen
Average
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Market
Los Angeles, Anaheim, Riverside
New York, N. New Jersey, Long Island
Chicago, Gary
San Francisco, Oakland, San Jose
Philidelphia, Wilmington, Trenton
Dallas, Fort Worth
Washington D.C.
Detroit, Ann Arbor
Boston, Salem, Lowell
Houston, Galveston
e4
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Source: Entertainment Data Inc. and ERA
Table V-2
LOCATION OF CINEMAS IN SANTA CLARA COUNTY
(1998)
Map
Key
Theater Name
Owner
City
Location
No. of
Screens
1
Almaden 5
Independent
San Jose
2306 Almaden Road
5
2
Aquarius
Landmark
Palo Alto
430 Emerson Street
2
3
Camera 3
Camera
San Jose
288 S. 2nd Street
3
4
Camera One
Independent
San Jose
366 S. 1st Street
1
5
Capitol 16
Century
San Jose
3690 Hillcap Ave.
16
6
Century 16
Century
Mountain View
1500 N. Shoreline Blvd.
16
7
Century Berryessa
Century
San Jose
1171 N. Capital Ave.
10
8A
Century Complex
Century
San Jose
3162 Olsen Drive
8
8B
Century 25
Century
San Jose
1694 Saratoga
2
9
Los Gatos
Independent
Los Gatos
41 N. Santa Cruz Ave.
2
10
Mercado 20
AMC
Santa Clara
3111 Mission College Blvd.
20
11
Meridian 6
Blumenfeld
San Jose
4396 Stevens Creek Blvd.
6
12
Milpitas 10
AMC
Milpitas
577 E. Calaveras Blvd.
10
13
Oakridge 6
AMC
San Jose
913 Blossom Hill Road
6
14
Oaks 5
Independent
Cupertino
21275 Stevens Creek Blvd.
5
15
Palo Alto Square
Landmark
Palo Alto
3000 El Camino Real
2
16
Pavilion 8
UA
San Jose
201 S. 2nd Street
8
17
Plaza 4
Independent
Campbell
2501 S. Winchester Blvd.
4
18
Pruneyard
UA
Campbell
1875 S. Bascom Ave.
3
19
Saratoga 14
AMC
San Jose
700 El Paseo De Saratoga
14
20
Sunnyvale 6
AMC
Sunnyvale
2604 Town Center Lane
6
21
Town and Country
AMC
San Jose
2980 Steevens Creek Blvd.
1
22
Towne 3
Camera
San Jose
1433 The Alameda
3
Source: ERA
FIGURE V-I : SANTA CLARA COUNTY CINE
Table V-3
BOX OFFICE REVENUES & ESTIMATED ADMISSIONS AT SANTA CLARA COUNTY CINEMAS
(1998)
MAINSTREAM THEATERS
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's
Revenues
per screen
Estimated
Admissions'
Admissions
per Screen
Century Complex
8
San Jose
Century
10
$9,288,538
$928,854
1,615,398
161,540
Century 16
6
Mountain View
Century
16
$11,083,434
$692,715
1,927,554
120,472
Mercado 20
10
Santa Clara
AMC
20
S12,900,112
$645,006
2,243,498
112,175
Capitol 16
5
San Jose
Century
16
$8,911,106
$556,944
1,549,758
96,860
Town and Country 2
21
San Jose
AMC
1
$406,827
$406,827
70,753
70,753
Century Berryessa
7
San Jose
Century
10
$4,063,995
S406,400
706,782
70,678
Saratoga 14
19
San Jose
AMC
14
$4,921,140
$351,510
855,850
61,132
Pruneyard
18
Campbell
UA
3
S674,745
S224,915
117,347
39,116
Pavilion 8
16
San Jose
UA
8
$1,346,046
$168,256
234,095
29.262
Milpitas 10
12
Milpitas
AMC
10
$1.626,945
$162,695
282,947
28,295
Oakridge 6 2
13
San Jose
AMC
6
$812,156
$135,359
141,245
23,541
Sunnyvale 6 2
20
Sunnyvale
AMC
6
S473,072
$78,845
82,273
13,712
Meridian 6 2
1 1
San Jose
Blumenfeld
6
$362,179
$60,363
62,988
10,498
Subtotal
126
$56,870,295
$451,352
9,890,486
78,496
ART/FOREIGN FILM
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's '
Box Office Rev's.
per screen
Estimated
Admissions t
Admissions
per Screen
Palo Alto Square
15
Palo Alto
Landmark
2
S838,317
$419,159
145,794
72,897
Aquarius
2
Palo Alto
Landmark
2
S464,559
$232,280
80,793
40,396
Camera One
4
San Jose
Camera
1
S139,266
$139,266
24,220
24,220
Los Gatos
9
Los Gatos
Camera
2
S271,104
$135,552
47,148
23,574
Camera 3
3
San Jose
Camera
3
$309,479
$103,160
53,822
17,941
Towne 3
22
San Jose
Camera
3
$99,271
$33,090
17,265
5,755
Subtotal
13
$2,121,995
$163,230
369,043
28,388
DISCOUNT THEATERS
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's
Box Office Rev's.
per screen
Estimated
Admissions
Admissions
per Screen
Plaza 4
17
Campbell
Independent
4
n/a
n/a
n/a
n/a
Oaks 5
14
Cupertino
Independent
5
n/a
n/a
n/a
n/a
Almaden 5
1
San Jose
Independent
5
n/a
n/a
n/a
n/a
Subtotal
14
Estimated admissions based on average ticket price including discounting) of $5.75.
Theaters with slightly discounted prices and other specials
' Box office revenues for the Los Gatos and Camera One are estimated are based on the performance of theatres with similar offerings and seating.
Source: Entertainment Data Inc.. ERA
Table V-4
BOX OFFICE REVENUE GROWTH AT SELECTED SANTA CLARA COUNTY CINEMAS
(1997-1998)
NEW MULTIPLEX THEATERS
1997'
Box Office
Share
1998
Box Office
Share
1997-98 CHANGE
Box Office Total
Mercado 20
$3,044,976
5.9%
$12,900,112
22.0%
$9,855,136
323.7%
Saratoga 14
$622,823
1.2%
$4,921,140
8.4%
$4,298,317
690.1%
Subtotal
$3,667,799
7.1%
$17,821,252
30.4%
S14,153,453
385.9%
EXISTING THEATERS
1997
Box Office
Share
1998
Box Office
Share
1997-98 CHANGE
Box Office Percent
Camera 3
$712,100
1.4%
$309,479
0.5%
($402,621)
-56.5%
Meridian 6
$749,472
1.5°A)
$362,179
0.6%
($387,293)
-51.7%
Sunnyvale 6
$857,739
1.7%
$473,072
0.8%
($384,667)
-44.8%
Oalaidge 6
$1,312,314
2.5%
$812,156
1.4%
($500,158)
-38.1%
Towne 3
$149,804
0.3%
$99,271
0.2%
($50,533)
-33.7%
Milpitas 10
$2,376,907
4.6%
$1,626,945
2.8%
($749,962)
-31.6%
Palo Alto Square
$1,160,028
2.2%
$838,317
1.4%
($321,711)
-27.7%
Pruneyard
$862,389
1.7%
$674,745
1.2%
($187,644)
-21.8%
Century Complex
$11,631,151
22.5%
$9,288,538
15.9%
($2,342,613)
-20.1%
Century Berryessa
$4,763,497
9.2%
$4,063,995
6.9%
($699,502)
-14.7%
Town and Country
$474,355
0.9%
$406,827
0.7%
($67,528)
-14.2%
Century 16
$11,979,436
23.2%
$11,083,434
18.9%
($896,002)
-7.5%
Capitol 16
$9,131,047
17.7%
$8,911,106
15.2%
($219,941)
-2.4%
Pavilion 8
$1,377,698
2.7%
$1,346,046
2.3%
($31,652)
-2.3%
Aquarius
$462,823
0.9%
$464,559
0.8%
$1,736
0.4%
Subtotal
$48,000,760
92.9%
$40,760,669
69.6%
($7,240.091)
-15.1%
TOTAL
$51,668,559
100.0%
$58,581,921
100.0%
$6,913,362
13.4%
The Mercado and Saratoga complexes both opened during 1997, box office totals represent partial year returns
Source: ERA, Entertainment Data Inc.
Table V-5
BOX OFFICE REVENUES IN THE LOS GATOS MARKET AREA
(Within approximately 6 miles of the Highway 85/Highway 17 interchange)
MAINSTREAM THEATERS
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's.
Revenues
per screen
Century Complex
8
San Jose
Century
10
$9,288,538
$928,854
Capitol 16
5
San Jose
Century
16
$8,911,106
$556,944
Town and Country '
21
San Jose
AMC
1
$406,827
$406,827
Saratoga 14
19
San Jose
AMC
14
$4,921,140
$351,510
Pruneyard
18
Campbell
UA
3
$674,745
$224,915
Pavilion 8
16
San Jose
UA
8
$1,346,046
$168,256
Oakridge 6 '
13
San Jose
AMC
6
$812,156
$135,359
Meridian 6 1
11
San Jose
Blumenfeld
6
$362,179
$60,363
Subtotal
64
$26,722,737
$417.543
ART/FOREIGN FILM
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's 2
Revenues
per screen
Camera One
4
San Jose
Camera
1
$139,266
$139,266
Los Gatos
9
Los Gatos
Camera
2
$271,104
$135,552
Camera 3
3
San Jose
Camera
3
$309,479
$103,160
Towne 3
22
San Jose
Camera
3
$99,271
$33,090
Subtotal
9
$819,119
$91,013
DISCOUNT THEATERS
Theater Name
Map
Key
City
Owner
No. of
Screens
Gross Box
Office Rev's
Revenues
per screen
Plaza 4
17
Campbell
Independent
4
n/a
n/a
Oaks 5
14
Cupertino
Independent
5
n/a
n/a
Almaden 5
1
San Jose
Independent
5
n/a
n/a
Subtotal
14
Theaters with slightly discounted prices and other specials
2 Box office revenues for the Los Gatos and Camera One are estimated are based on the
performance of theatres with similar offerings and seating.
Source: Entertainment Data Inc., ERA
CINEMA DEMAND FORECAST
(Mainstream Multiplex Cinemas)
Projected Demand
2000 2005 2010 2015
1,656,900 1,719,100 1,767,200 1,797,200
$57,163,050 $60,168,500 $62,735,600 $64,699,200
$34.50 $35.00 $35.50 $36.00
6.0 6.1 6.2 6.3
00
00
Tr
00
7
00
as
r
N
r-
M
40
rn
ri
7
N
rry
r
Historic Demand
1997 1998
1,577,530 1,603,564
$49,193,804 $56,870,295
$31.18 $35.46
5.4 6.2
.0
N
00
ON
N
,D
—
•zt'Cr
\0
M
r'n
SANTA CLARA COUNTY
Resident Population
Mainstream Cinema Revenue
Per Capita Expenditure
Per Capita Movies'
Screen Supply
Supportable Screens @ $350,000
Additional Screens Supportable
Projected Demand
2000 2005 2010 2015
617,460 637,750 654,360 664,740
$27,785,700 $29,017,625 $30,100,560 $30,910,410
$45.00 $45.50 $46.00 $46.50
7.8 7.9 8.0 8.1
N
[-
N
t—
N
N
�O
00
00
.O
co
M
00
CT
I�
.D
—
r
--
—
—
—
Historic Demand
1997 1998
588,520 598,013
$26,161,249 $26,722,737
$44.45 $44.69
7.7 7.8
'Cr
V0
eV
,O
[--
v1
t-
23 12
LOS GATOS MARKET AREA
Resident Population
Mainstream Cinema Revenue
Per Capita Expenditure
Per Capita Movies 2
Screen Supply
Supportable Screens @ $350,000
'Additional Screens Supportable
Source: ERA
Section VI
OFFICE MARKET ANALYSIS
This section analyzes current and projected levels of demand for office space at the
North 40 site. We first review local and regional office vacancy rates and rents and assess the
amount of space absorbed annually within various relevant submarkets. Next we characterize
the existing supply of office space in the market area in greater detail and survey the
performance of local office projects. We then consider the competitive supply of office space
expected to come on line in the near future and compare these figures with projected levels of
demand. Ultimately we assess the amount of office space the North 40 site will be able to
support over the next 15 years.
CURRENT AND HISTORIC OFFICE DEMAND
Growth in the high technology sector as well as in a variety of related service
industries has fueled tremendous demand for office space in Silicon Valley during the past
four years. Table VI-1 presents average office rents in suburban Santa Clara County and
downtown San Jose since 1995. Office demand, relative to supply, peaked in early 1998 in
suburban markets. Suburban office lease rates reached $2.80 per square foot per month at
that point and then fell back slightly as new supplies entered the market. Lease rates in
downtown San Jose have continued to rise quickly as demand surpasses new construction.
A more detailed consideration of submarkets within the county reveals variations in
office supply and demand trends. Table VI-2 presents office inventory figures and vacancy
rates for segments of the West Valley market as well as surrounding submarkets. As the
recession of the early 1990s pulled to a close, vacancy rates in the county were near 12
percent. In that year and the few years following, vacancies within the West Valley area and
Los Gatos largely mirrored those in the county. Vacancies dropped quickly during 1995 and
1996 to reach 3.4 percent in the county and just 1.7 percent in the West Valley. Within Los
Gatos itself, vacancies reached just one percent in 1996 and remained extremely low until
new supply was added in 1998.
In Table VI-3, these figures are translated into amounts of office space absorbed
annually in each submarket. County -wide, net absorption (the increase in occupied space)
has averaged over one million square feet per year since 1995. The West Valley area has
Economics Research Associates VI-1
absorbed about 100,000 square feet annually during this period, and Los Gatos itself about
47,000 square feet per year. Figures for the West Valley vary widely among the different
cities. Campbell and the western portion of San Jose experienced some large tenant losses
during the period. Los Gatos remained extremely tight throughout the period adding new
supply in 1998 and quickly absorbing over 110,000 square feet. After absorbing very little
new space during the mid 1990s relative to total absorption in the West Valley, Los Gatos
accounted for over two thirds of area absorption in 1998. Historical absorption figures for
Los Gatos reflect the lack of new construction in the Town rather than actual levels of local
demand for office space.
OFFICE SUPPLY CHARACTERISTICS AND PERFORMANCE
The performance of office space in the West Valley has lagged behind other Silicon
Valley markets in large part due to the concentration here of older, lower grade facilities.
Table VI-4 presents an overview of office grades and inventories in various submarkets near
Los Gatos. The West Valley currently contains more class C office space, consisting of
lower quality, older buildings, than any other nearby area. In total, 30 percent of the class C
office space in Santa Clara County is concentrated in the West Valley. As Table VI-5
displays, the West Valley thus contains the lowest rent class C office space in the area.
Within the class A category, the West Valley contains a far smaller portion of the county
total, under nine percent. Class A rent levels in the West Valley fall within the range of rents
for such space throughout the county, about $3 per square foot. These figures point to the
fact that higher vacancy figures for the West Valley area (relative to extremely low vacancies
countywide) are probably due mainly to large quantities of older office space rather than
location.
Table VI-6 details the current performance of a number of office projects in Los
Gatos and surrounding areas. In general, brokers dealing with office space in Los Gatos
emphasize the fact that demand has not been met, historically, by new supplies. Compared
with earlier periods in which high technology firms remained concentrated in areas to the
north of Los Gatos, today's high-tech office users are increasingly seeking space in Los Gatos
and the West Valley area. Growing local high-tech demand follows from a number of
factors. Perhaps most importantly, the concentration of Silicon Valley executives in Los
Gatos and surrounding West Valley communities makes the area a very convenient commute
for people with control over firm location decisions. Additionally, the West Valley still
boasts office lease rates below those in areas to the north such as Cupertino and Santa Clara.
Economics Research Associates VI-2
Finally, increasing numbers of Silicon Valley workers are commuting from Santa Cruz,
making Los Gatos the closest, most convenient destination in the area.
Overall, local office properties are faring extremely well in Los Gatos and the West
Valley. Among the newest office projects in the market area is the 60,000-square-foot
development at 750 University Avenue in Los Gatos. The project was finished in 1998 and
all but 5,000 square feet had been quickly leased to research and development users at
extremely high rates. At $3.50 per square foot, lease rates are running as high here as almost
anywhere in Silicon Valley and the Bay Area. Other local projects, such as the Twin Parks
office nearby, are leasing at only slightly lower rates, indicating strong demand for space in
the area. The older University Park development, also located nearby, boasts nearly complete
occupancy in its 230,000-square-foot office campus. Smaller, older properties in Los Gatos
are leasing space at lower rates than these projects. In general, new office projects in Los
Gatos are commanding higher rents than other areas of the West Valley.
In Campbell, projects built in the 1980s are commanding office rents ranging from
$2.25 to $3.25 depending on the quality of the space. The Greylands Business Park recently
leased 100,000 square feet to the fast-growing interne company E-Bay. Additional available
space at the property is running at $3.25 per square foot. In Saratoga, the Saratoga Office
Center, also built in the mid 1980s, is leasing space for $3.00 per square foot.
FUTURE COMPETITIVE OFFICE SUPPLY
In response to extremely high lease rates and consistently low vacancies, office
developers continue to construct new projects in the Silicon Valley market. Table VI-7 lists
projects currently under construction, approved, or planned in the market area. While an
extremely large amount of space is currently under construction, nearly 1.8 million square
feet, and over 4.5 million additional square feet has been planned, land constraints continue
to hold office supply growth in check in the market area near Los Gatos. Within Los Gatos
itself less than 50,000 square feet are currently planned, and a total of under 500,000 square
feet have been planned (most of it currently under construction) in Campbell, Cupertino,
Saratoga, and nearby areas of San Jose. The most direct competition for office development
at the North 40 will come from the Pruneyard area of Campbell. Two new developments,
one 130,000 square feet and the other 280,000 square feet, will be completed within the next
year. Located alongside Highway 17 with high visibility and easy access, and surrounded by
a wide variety of commercial uses, these projects are well positioned to take advantage of
Economics Research Associates VI-3
growing interest in West Valley office space. The larger of the two developments is currently
leasing space for $1.85 triple net (meaning the figure does not include certain building
operating expenses), a far more affordable rate than most new office projects. Poorly planned
office developments built in the Pruneyard area some years ago have tainted its market image
and continue to hold down lease rates in the area.
OFFICE DEMAND FORECAST
Table VI-8 presents our forecast office demand figures. We calculated future
demand at the North 40 site by considering a number of factors. We established historic
demand rates for office space in Santa Clara County and the West Valley area by correlating
office employment growth with new space absorption. By carrying office -space -per -
employee trends and office employment growth projections forward together, we assessed the
amount of office demand for 1998 through 2015. We then considered the amount of space
likely to enter the market during 1999 and 2000, and calculated leftover demand for these
years. Finally, by projecting the share of forecast future demand that the West Valley and
Los Gatos areas will be able to capture, we calculated the amount of space for which we can
expect market support at the North 40 site.
During 1999 and 2000, approximately three and a half million square feet of office
space will enter the Santa Clara County market. Of this total, over 500,000 will be located in
the West Valley. The competitive advantages of the North 40 location are such that we
expect support for 80,000 square feet of new office space during these two years. We
forecast support for an additional 120,000 square feet between 2000 and 2005, and another
100,000 during the following five years. In total, we project demand for 300,000 square feet
of office space at the North 40 site during the next ten to fifteen years.
Economics Research Associates VI-4
O1 •-• CO N 6'1 V'1 00
M 4 4 N .O V M
Cr*, M '1" 0 N M
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N N N N N N N
69 64 69 b9 69 69 69 69
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Total Occ. Vac. Vac.
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Total Occ. Vac. Vac.
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C1 O N -- d' O
Ti N r- d' O, oO
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Ann. Avg.
1994-98
N 0 0 --'
d' 00 00 00
N, .-- T
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en -- -- --
kn
C,
d'
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N 00 en 00 \D M
M ,.D O ON 00 0
O 00 N NO tel 00
d' kn end' M V1
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00
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0 0 0 ,n
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m 0 0 v1 N 0
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? 0 O\
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-- v1 0 0 --- 0
00 � 0 to N
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6
d
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o
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a
a
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cn
0
a�
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0
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z
Source: CB Commercial, ERA
Table VI-4
SANTA CLARA COUNTY OFFICE SUBMARKETS: OFFICE GRADES AND INVENTORY '
Total Share of I
Inventory Total
0
O
N
r -
O
00
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oo
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0 0 0 0 0 0
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N—, .....
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to
Vl
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Class C Share of
Inventory Class C
0
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or,
in...
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0 0 69 o 0 0
[- M -- O V M
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, .---
69
O
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r
Class B Share of
Inventory Class B
C
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4
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N
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‘.O O_ 00 N t� .O
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N
Vl
Class A Share of
Inventory Class A
0
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7
--
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N N
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-+ M N
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Selected
Submarkets
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>
�ry
Source: CB Commercial, ERA
Table VI-5
SANTA CLARA COUNTY OFFICE SUBMARKETS: OFFICE GRADES AND AVERAGE RENTS
Average
Tr
N
63
I` M M .^ rf Ul
00 'Cr 7 O I�
(Ni N N N N N
69 64 69 69 69 69
N
63
Class C
'.O
N
69
trl N .- , 00 ON t+l
M ---- I� V'1 N N
— .-+ N N
69 69 69 69 69 69
00
N
69
Sol'eel'
•-+
EA
N I� R 00 N 00
N --'- Vl I— Vl rn
EA 6csi 699 669 69 EA 699
N
M
69
d
vi
R
U
O
M
69
Er) 0 In 00 0 61
t/'1 O O 4) t•
M M r•l N K1 N
69 69 69 69 69 69
M
M
M
69
Selected
Submarkets
-
>,
v
3
O
r,
3 S.
0 0 c ee
ogz'!)R_
y 8 8 U >
ai ti -3 ti �? a
0.
= e0 g eC eC 7
vv)�Incn cn
0
0
U
CI
U
ea
1
CA
Source: CB Commercial, ERA
SURVEY OF SELECTED LOCAL OFFICE PROJECTS
0
m
e 0 ^pp'
b•0 3
= .� 0
a Q3
U y 0 E
-00
...0 c g' y -SE
6. O Vl 4...i 0 N • CA 0
O 'y O •b O O R J.p
E3mz �E- E- W r% n
CD 61 0 0 CD R R v1 In �n v1 O 0 o 61 61
N ON 61 M O -a N N Si N e7 'V O O h 00
M N M N N M N M N N N M M
69 69 69 69 69 69 69 69 69 69 69 69 69 69 69
N 00 Tr 0 Cr,r' l� O VD ON M N e
.r .-. .-. es.1 — .-. Tr M
0 0 0 O N O O O O'. O MM M '.0 O O O
OOO 0MO_NM 0O O
M tel ON
M./N^OO.4 dN VlviO
.-•
M M N •-• M —
0 0 0 0 0 0 0 0 0 0 0 O
0 0 O
N000oOOO000 p0No 0' O O
O'OOfzt�'.00 V1 ONa0m.
N M ,D— — d', V�NM O\ NVM
N N.. .» C
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0'.SON'ano000 000000NN00 00 ' a 00
C. O'. O\ O+ C\ O'. O'. O'. O\ O'. O'. C\ a\ 0, ON
U
O O O O O O O y N N N C 4co co CA
O O O
R A A A R R Agggghgt .0 .0.0 „0 JO
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a°°°rig 00'c
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0 E
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a
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a. m C7 C7 N 'E ^�
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> 0 0' •0 > WW u 'd y
3 D v1 I!i I. O t O o
E.ems-.• �-,� OcA4 =
Saratoga Office Center, 12900 Saratoga
303 Almaden
101 Park Center Plaza
3550 Stevens Creek Blvd
Source: ERA
Table VI-7
OFFICE PROJECT PIPELINE
Description
Status
Location
Size (sqft)
LOS GATOS
New office
Approved
720 University Ave.
20,000
Mixed -use development
Pending
15089 Los Gatos Blvd.
15,500
Mixed -use development
Pending
634 N. Santa Cruz Ave.
11,000
SUBTOTAL
46,500
Campbell
New 6-story at Pruneyard
Construction
NW Bascom/Campbell
130,000
New R & D office
Construction
McGlincey/Winchester
280,000
Office redevelopment
Approved
SE Central/Civic Center
12,700
New 2-story office
Approved
Hamilton/Marathon
10,000
SUBTOTAL
432,700
Cupertino
Office redevelopment
Construction
De Anza/Stevens Creek
34,600
San Jose
None
(Near Los Gatos)
San Jose
Corporate Technology Center
Construction
Hwy 237/Zankers (North)
602,000
(Other Areas)
The Concourse
Construction
Guadalupe/Airport (North)
354,000
First Montague
Construction
N. 1st/Montague (North)
255,000
Integrated Circuit Systems
Construction
Race/Auzerais (Central)
75,000
Rosendin Electric
Construction
Mabury/Timothy (Alum Rock
44,000
Sobrato Development
Approved
W. Julian/Hwy 87 (Central)
460,000
Opus West
Approved
Santa Clara/Almaden (Centra
320,000
Race Street Office
Approved
Auzerais/Race (Central)
47,000
Spieker Skyport
Pending
N. lst/Skyport (North)
925,000
One South Market
Pending
Santa Clara/Market (Central)
300,000
San Ignacio Office
Pending
San Ignacio (Edenvale)
42,000
SUBTOTAL
3,424,000
Santa Clara
Medical Offices
Approved
3700 Homestead
770,000
New Office
Approved
3975 Freedom Circle
600,000
New 2-story
Approved
4210 Great America
36,200
R & D Offices
Approved
2525 Augustine
60,000
New 2-story
Approved
3310 Woodward
32,500
New Office
Approved
2050 Central Expressway
75,000
SUBTOTAL
1,573,700
Saratoga
None
Sunnyvale
None
SUBTOTAL - Construction
1,774,600
SUBTOTAL - Approved
2,458,900
SUBTOTAL - Pending
1,293,500
TOTAL
5,527,000
Source: Local governments, ERA
Table VI-8
OFFICE DEMAND FORECAST
Forecast
2000 2005 2010 2015
161,828 171,662 183,841 193,345
39,046,000 40,941,387 43,845,959 46,112,783
36,411,300 38,623,950 41,364,113 43,502,625
225.0 225.0 225.0 225.0
6.7% 6.0% 6.0% 6.0%
tn
0
0
N
O
IA
O
O
N
t
O
0
O
O
N
O
O
00
n a\
—
u
a)
L
O
1,750,000 379,077 580,914 453,365
16.0% 15.0% 15.0% 15.0%
280,000 56,862 87,137 68,005
25.0% 45.0% 35.0% 35.0%
70,000 25,588 30,498 23,802
140,000 267,939 420,429 539,437
80,000 200,000 300,000
Historical
1995 1998
131,349 148,812
32,671,000 35,546,000
30,227,000 34,444,000
230.1 231.5
7.5% 3.1%
Historical
1995-98
L99`IS
%£' b9
000`S8
%6' 8
£££`8S6
OFFICE SUPPLY
Est. Office Employment
Office Supply
Occupied Space
Sqft/Employee
Vacancy Rate
SUPPLY CHANGE
County Annual Supply Addition
West Valley Share
West Valley Annual Addition
Los Gatos Share of WV
Los Gatos Annual Addition
Los Gatos Cummulative
Subject Site's Total
T
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Section VII
HOTEL MARKET ANALYSIS
This section analyzes market support for hotel development at the North 40. We
begin be considering trends in lodging revenues throughout the market area and comparing
market shares captured by Los Gatos and surrounding cities. Next, we look at occupancy and
room rates for the region and focus on the performance of local hotels. Finally, we forecast
the future demand for hotel rooms in the market area and consider whether it will surpass
planned supplies coming on line.
MARKET AREA LODGING REVENUES
Table VII-1 presents annual lodging revenues during the 1990s for the Town of Los
Gatos and surrounding cities. Los Gatos accounted for about two percent of the revenue
generated in the cities considered, and its share of the market grew steadily until fiscal year
1997, when the Lodge at Villa Felice closed. Among the neighboring cities considered—
Campell, Cupertino, San Jose, Santa Clara, Saratoga, and Sunnyvale —only San Jose
substantially increased its share of lodging revenues during the 1990s. Los Gatos managed to
increase slightly despite the recent closure, while all of the other cities experienced
diminishing market shares.
Table VII-2 converts annual lodging revenues into constant 1998 dollars in order to
show real revenue growth. Annual increases in revenues have been substantial in nearly
every city under consideration. Revenue in the Town of Los Gatos increased by over ten
percent annually during the 1990s, more than the extremely healthy group average of nearly
nine percent. Only San Jose's revenues grew at a faster pace. Through the mid 1990s,
revenues in Los Gatos grew at nearly double the rate of many surrounding cities. In 1997,
however, with the loss of the Villa Felice, revenue dropped by over 20 percent from the
previous year.
Lodging revenue growth in Los Gatos, as well as in some surrounding cities, can be
entirely attributed to increasing levels of occupancy and rising room rates during the 1990s.
No new hotels were added during this period in the Town or in immediately adjacent cities
such as Saratoga and Campbell. This indicates that the area represents an extremely
Economics Research Associates VII-1
attractive hotel market, one which has managed to increase revenues dramatically while
competing with new, expanding supplies in other portions of Santa Clara County.
ROOM RATES AND OCCUPANCY
Regional Trends
Throughout Santa Clara and San Mateo Counties, a booming Silicon Valley economy
during the late 1990s has driven up enormous demand for hotel rooms. Growing numbers of
visitors to the Bay Area during the period and continued population growth have also spurred
demand throughout the region. Table VII-3 presents average room rates and occupancy
figures for Santa Clara and San Mateo Counties and for Northern California. Occupancy
rates peaked in the region in 1997, at 81.5 percent. Large numbers of new hotels built during
the past year have brought the occupancy rate down to a still healthy 78 percent. Rate
increases during the past four years have been extreme throughout Silicon Valley, rising at
over 16 percent annually each year. In 1995, room rates in the area were lower, on average,
than Northern California as a whole. During the ensuing years of high demand, Silicon
Valley room rates have passed and risen well above rates in the surrounding region.
Local Market Performance
A hotel at the North 40 site, with high visibility and easy highway access to a broad
area of Santa Clara County, would compete with hotels in the West Valley as well as
downtown San Jose and areas further to the north. However, the Los Gatos location provides
a set of nearby amenities --chief among them views of the hills and access to shopping and
strolling opportunities within the Town —which areas outside the West Valley do not include.
We therefore define the market area to include: Los Gatos, Campbell, Monte Sereno, and
Saratoga. The area's appeal to travelers is evidenced by growing lodging revenues despite
unchanged supplies and by the extremely successful performance of local hotels.
Table VII-4 presents an overview of hotels in the market area. Nearly all of the
properties are experiencing occupancy rates above the average for Silicon Valley, some are
fully booked for weeks and even months in advance. Average occupancy for the area is an
extremely high 86 percent. Most operations are fairly small, all but two have fewer than 100
rooms, and no new hotels have been built in the area since 1989. The average room rate,
$125, is somewhat lower than the average for Silicon Valley as a whole. According to the
Economics Research Associates VII-2
hotel operators, business travelers make up the majority of hotel guests. On weekends and
during summer months, other visitors to the area often fill up some of the smaller properties.
Many local hotels, especially in Los Gatos and Saratoga, are owner -run operations which
tend to rely less on marketing and cater instead to repeat clients who spread their name by
word of mouth.
COMPETITIVE HOTEL SUPPLY
A few new hotels are planned or currently under construction in the market area.
Table VII-5 outlines new hotel projects in various stages of planning and development in the
market area and in nearby areas of San Jose. Within the Town of Los Gatos, a new 72-room
hotel has been approved on E. Main Street, just across the freeway from downtown. The Toll
House Hotel, just to the west of downtown, is planning to add 27 rooms as well. In
Campbell, a 54-room addition to the Pruneyard Inn is currently under construction, and a new
117-room long -term -stay hotel has been approved as well. We consider most of these
projects to pose a direct challenge to any new development at the North 40 site. The long-
term -stay hotel may serve a sufficiently distinct market and prove less relevant to future
demand at short-term hotels in the area.
Within San Jose, upcoming supply additions may impact demand at the North 40 site
as well, but to less a degree than new projects closer in. A total of 420 rooms are either
approved or planned for western parts of San Jose, including a 200-room hotel at the
redeveloped Town and Country Mall which has been approved by the city.
HOTEL DEMAND FORECAST
Table VII-6 presents our forecast hotel demand for the market area consisting of Los
Gatos, Campbell, Monte Sereno and Saratoga. Compared with a current total of 807 rooms,
the area will experience substantially increased supplies during the next two years. An
estimated 153 rooms will be completed in 1999 and another 117 will be added in 2000.
Additions to San Jose will also likely siphon demand for rooms in the area. These new
developments are responding to extremely high local occupancy rates which have mounted
during a period of virtually no new supply additions.
Our demand forecast relies on projected population and employment growth in the
area along with a factor to account for the pent-up demand for rooms in the area which has
not been expressed due to extremely tight supplies. A portion of new supplies coming on
Economics Research Associates VII-3
line during the next few years will actually induce demand in the West Valley compared to
other surrounding areas. Given the influx of new rooms, we project that the number of
supportable rooms at the North 40 site will remain fairly low until 2002. We forecast that by
the year 2002, demand will reach a level sufficient to support a 150-room hotel at the North
40 site.
Economics Research Associates VII-4
Table VII-1
MARKET AREA LODGING REVENUES 1990-1998 '
00
CN
t`o
oh
oN
o+
ON
WI
o+
..r
un
on
Obi
O,
Q\
CN
N
O,1
Os
'O O c O
oo O v oo kr, '0
I� 'O O N K1 kr, 0o
r 00 00 N 00 N to N
69 69 69 O_ 69 00 C
69 M
69 69 69
0 O 00 O N V 00
.0 v1 kr, N r N
CO 00 .O 00 j
00 cr." N C— N N ^ V1
69 69 64 '17 00 69 [� M
6H 69 M
fs9 69
M s.O O r --O e r
0 O U1 O N Q 0
,O o0 00 O Le-,N 00 Ck
69 69 69 �N. C-- 69 'I b
b4 6A N
64 64
O C\ 0 C+ C\ 0 1n N
C C. O 0rn o0 00
Vl V1 N 00 to
69 64 69 0 ,O 69 7 N
69 69 69 N
69
0 cr. 0- 0 d• O
cns O oo O O kin r,
et C 00 vl M Le
69 69 69 00 v'i 69 0
69 69 69 N
69
N 4-1 'n VD ,O 0 M r-
M M N l� N O '0 O
0 �0 VO 0 N ,n M v'1
69 6699 69 t- O 69 7 000
69 69 69
69
O O 0 C, C, 0 V en
v.,co un 0 �t CZ
O M Q O O d M
69 69 69 r O� 69 d' 0N00
69 69 69
69
r- C` 0 C M co N
O. O C) M v7 0
O� N 00 r--
N kr V'1 [- N
69 69 69 'O 'I 69
69 69 69
00
69
Santa Clara
7.1
OD
j,
L.
00 00
Total Market
Change 90-98
0 0 0 0 0 0
[� O r- N O
O O 7 `D 7 O
0
on
r-
on
on
b
0,
O,
er
on
o+
et
o+
M
on
on
.-w
M
cn
CA
o+
oN
0
oo N N 00 'J co
O
N N O
0 0 0 0 0 0 0 0
O C M T N r M O
N N N M sO O^ 0
7 N N 0
0000000
G" Q\ 00 00 --0
N N N M 'O O ^- 0
�t N N 0
0 0 0 8Q 0 0 0 0
M Tr. M O 'O oo ' O
N N M M D O O
N N 0
0 0 0 0 0 0 0 0
---1' M oo oo N O
N M M \O O O
- N N 0
0000000
Len kn D o0 00 O
N M N 0 ci
N 0
8Q 8 O O O e O
t- M v::; CO CO VI O
N M O O M O
N N 0
8 o OO C O 8Q o
�O ON N rr N 00 00 co
O O
M N N O
LOS GATOS
Santa Clara
Total Market
Source: Local Governments, ERA
ANNUAL LODGING REVENUES ADJUSTED TO CONSTANT 1998 DOLLARS
00
O,
r
CT
N
ON
ON
—
OO
ON
N
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11
If
CT
rr
f►r
a:T
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oo O v') oo v') —
r O N M v) 00
✓ 00 00 N 00 N iris
69 69 69 ^ O 64 00 Q\
69 M
69 69 69
as 00 M N M as en N
ON .rr CTn• en01 v� O
O CO •D O
• c• o" r N O • N ri ,D
69 --o EA vl O\ 69 r 4
69 -» 69 69 M
69 64
00 v'1 vl r N ^ r 00
7 s O es., r-
t.-7 00 00 oo" O N f V 00
69 69 69 N 00 69 \D
69 69 N
69 69
VD cf vl O \O OT ^
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vD 00 O ^ VD,. ON M NO
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69 69 EA 0 VD 69 vl 4
69 69 N
69 EA
✓ 7 en .-. 4 4 sO O�
00 r- oo N 00
v• i t- o0 00 00
69 69 69 CT Vr 69 d
69 69 69 N
69
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CNNC CTvl _
d' eVmr Tn 00 VO O
M tn.. r 00 VO CT N
69 69 69 00 v') EA .1' _
69 69 EA N
69
0000 vl v'1 00 eN M m 00
• O o0 0o O VD C
M v• l ,Z3 CT
69 69 69 CO v• l EA tt
69 69 64 N
69
✓ O1111 01 00 O ON rt
M ,O NO N eh 00 00
vl M CT M vl r oo M
M v: M ^ M r
69 69 69 00 V')
EA 69 69 N
69
LOS GATOS
.--, O - ao
9 y ea R
= O. = C LR. =
U U Cis rig v) rn
Total Market
REAL GROWTH IN LODGING REVENUES 1990-1998
da
i
a
O 0 0 0 0 0 0 o
(- M C1 4 00 00
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0 0 0 0 0 0 0 0
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r CT M N ON
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Source: Local Governments, ERA
fl
Table VII-3
NORTHERN CALIFORNIA
Room Occ.
Rate Change Rate Change
72.9%
76.5% 4.9%
79.0% 3.3%
78.2% -1.0%
$91.16
$110.00 20.7%
$118.50 7.7%
$127.72 7.8%
SC COUNTY & PENINSULA
Room Occ.
Rate Change Rate Change
76.8%
80.4% 4.7%
81.5% 1.4%
78.2% - -4.0%
$87.15
$101.25 16.2%
$120.40 18.9%
$140.05 16.3%
v,
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00
a
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a
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a
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a
a
Partial year figures for 1998 (through November)
Source: PKF Consulting, ERA
Table VII-4
Total Total Largest Corporate Quoted
Year Guest Meeting Meeting Room Occupancy
Built Rooms Space Room Rate Rate
1935 30 - - $ 85 98%
1962 20 425 425 $ 110 98%
1958/73 128 3,000 1,800 $ 105 78%1
n/a 60 - - $ 73 85%
1983 97 5,000 1,900 $ 144 85%
1975 23 - - $ 75 82%
0
O
a
0
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a
n/a 49 - - $ 65 95%
1989 116 3,000 1,060 $ 139 85%
1986 80 - - $ 179 80%
1987 51 1,100 500 $ 157 85%
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69
69
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en
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Location City
46 E Main St Los Gatos
18840 LG-Saratoga Rd Monte Sereno
50 LG-Saratoga Rd Los Gatos
55 LG-Saratoga Rd Los Gatos
140 S. Santa Cruz Ave Los Gatos
235 W Main St Los Gatos
675 E Campbell Ave Campbell
1300 Camden Ave Campbell
1240 Camden Ave Campbell
1995 Bascom Ave Campbell
2761 S Bascom Ave Campbell
20645 Fourth St Saratoga
14626 Big Basin Way Saratoga
• 0
Garden Inn
La Hacienda Inn
Los Gatos Lodge
Los Gatos Motor Inn
Toll House Hotel
Village Inn
Campbell Inn
Executive Inn Suites
Motel 6
Pruneyard Inn
Residence Inn
Inn at Saratoga
Saratoga Oaks Lodge
Total / Average
Source: Direct from hotels, ERA
Table VII-5
HOTEL PROJECT PIPELINE
Description Status
Location
Rooms
LOS GATOS
New hotel Approved
210 E. Main Street
72
Toll House addition Approved
140 Santa Cruz Ave.
27
SUBTOTAL
99
Campbell
Pruneyard addition Construction
NW Bascom/Campbell
54
New "suites" hotel Approved
SE Hamilton/San Tomas Expway
117
SUBTOTAL
171
Cupertino
None
San Jose
Town & Country Village Approved
Stevens Creek/Winchester
200
(Near Los Gatos)
Inn at Moorpark Approved
Moorpark/Saratoga
77
Executive Suites Hotel Approved
Bascom/Shelly
43
TownePlace Suites Pending
Saratoga/Keily
100
SUBTOTAL
420
Saratoga
None
SUBTOTAL - Under Construction
54
SUBTOTAL - Approved
536
SUBTOTAL - Pending
100
TOTAL
690
Source: Local governments, ERA
Table VII-6
HOTEL DEMAND FORECAST
Hotel Room Demand Analysis
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Factor
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0 0 0 0 0
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Growth
'
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M N
0 0
N N
0
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0
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0 0 0 0 (
(NI N N N 00
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0 0 0 0•
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Source: ERA
Section VIII
FISCAL IMPLICATIONS OF LAND USES
This section weights the impacts of different land uses on the Town's budget. The
fiscal impact on Los Gatos of each use is roughly calculated here in terms of tax revenues
generated by the use less public services expenditures. In summary, a hotel would be most
beneficial to the Town's General Fund budget, followed by retail uses, a cinema complex,
and finally offices. Due to the high number of workers and the lack of taxable activities
directly associated with offices, this use costs the Town more budget dollars than it
contributes in taxes. However, office use provides support for other uses that generate a
more favorable fiscal return, like hotels, shops and restaurants.
Table VIII-1 outlines the tax revenues generated for the Town by each use. The
table also estimates Town expenditures for public services associated with those uses. When
considering the fiscal impacts of a specific land use, it is important to note that retailers,
entertainment venues, hotels and offices provide one another with patronage and other
synergies which are not well reflected in these fiscal impact figures.
Each of the land uses considered would generate revenues for the Town based on a
combination of tax sources. Compared with other revenue sources, property taxes have a
relatively small overall impact. The Town of Los Gatos receives just nine percent of the one
percent of assessed property value collected for property taxes. Sales taxes figure more
prominently: the Town receives one percent of all taxable retail sales. Among non -retail
uses, retail sales taxes are generated in a variety of ways. In hotels and cinemas, for example,
a portion of the use is dedicated to retail or restaurant space which generates taxable sales.
With offices, we consider local expenditures by office workers in order to estimate sales tax
impacts. For this analysis we assume that office employees spend an average of $2,800
annually in local Los Gatos restaurants and retail stores. These are expenditures which would
not have been made had the workers been located elsewhere. Transient occupancy tax, at ten
percent of hotel room revenues, generates the greatest amount of revenue for the Town on a
per acre basis.
Economics Research Associates VIII-1
Table VIII-1
COMPARISON OF TAX REVENUES AND PUBLIC SERVICE COSTS
Retail Retail Retail I
Home Furnish. Build. Mat. Specialty Office Cinema Hotel
90,000 60,000 100,000 300,000 60,000 75,000
0.3 0.3 0.3 0.5 0.3 0.5
6.9 4.6 7.7 13.8 4.6 3.4
500 500 400 225 1,000 600
180 120 250 1,333 60 125
$25 $25 $28 $50 $25 $30
$75 $75 $150 $180 $175 $180
$14,250,000 $9,500,000 $24,333,333 $84,000,000 $15,500,000 $18,000,000
$142,500 $95,000 $243,333 $840,000 $155,000 $180,000
$12,825 $8,550 $21,900 $75,600 $13,950 $16,200
$220 $200 $250 $12 $14 $24
$198,000 $120,000 $250,000 $37,333 $8,575 $18,185
85% 85% 85% 95% 85% 90%
$168,300 $102,000 $212,500 $35,467 $7,289 $16,367
00 -
v
- cr
$181,125 $110,550 $234,400 $111,067 $21,239 $474,208
Assumptions
Building Size (Sqft)
Floor Area Ratio (FAR)
Land Area (Acres)
Sqft per Employee
Employees
Property Tax Revenues
Land Assessed Value (per Sqft)
Building Assessed Value (per Sqft)
Total Assessed Value
Annual Property Tax 1 %
Los Gatos Share 9%
Sales Tax Revenues
Sales per Sqft
Sales Tax 1.0%
Net New Revenues
Net Gain to Los Gatos
Transient Occupancy Tax Revenues
Gross TOT Revenues 2 10%
Net New Revenue in Los Gatos 85%
LOS GATOS TOTAL REVENUES
Table VIII-I (Cont.)
COMPARISON OF TAX REVENUES AND PUBLIC SERVICE COSTS
) tg
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E \
/ E00
E
r a)
a.)"0
Source: ERA
Town Council Minutes June 7, 1999
Redevelopment Agency Los Gatos, California
COUNCIL CALENDAR OF MEETINGS (03.10)
Informational item presenting future Town Meetings for Council and other Town Boards and
Commissions was received and filed.
RATIFICATION OF PAYROLL/MAY 1999 (04.V)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council ratify the check registers for
the payroll of May 2 through May 15, 1999 paid on May 21, 1999, in the amount of $398,978.53.
Carried by a vote of 4 ayes. Mr. Hutchins absent.
ACCOUNTS PAYABLE/RATIFICATION/MAY 1999 (05.V)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council ratify the accompanying check
registers for accounts payable invoices paid on May 14 and May 21, 1999, in the amount of
$1,289,771.10. Carried by a vote of 4 ayes. Mr. Hutchins absent.
MINUTES OF MAY 17, 1999 (06.V)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council approve the Minutes of May
17, 1999 Joint Redevelopment/Town Council Meeting as submitted. Carried by a vote of 4 ayes.
Mr. Hutchins absent.
LIBRARY LOAN PERIOD CHANGES (07.44)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, to accept and file informational item
regarding change in Library loan periods. Carried by a vote of 4 ayes. Mr. Hutchins absent.
FRIENDS OF THE LOS GATOS PUBLIC LIBRARY/DONATION OF $17,990 (08.44)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council accept donation of $17,990
from the Friends of the Los Gatos Public Library. Carried by a vote of 4 ayes. Mr. Hutchins
absent.
COPIER/PINNACLE DOCUMENTS/PLANNING DEPARTMENT (09.28)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council authorize fixed asset purchase
of copier for Planning Department from Pinnacle Document Systems for $24,215.53. Carried
by a vote of 4 ayes. Mr. Hutchins absent.
NORTH FORTY SPECIFIC PLAN/MARKET STUDY/ECONOMICS RESEARCH (10.47)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council accept and file report and
referral to the General Plan Committee and Planning Commission regarding Economics
Research Associates updated market study for the North Forty Specific Plan Area. Carried by
a vote of 4 ayes. Mr. Hutchins absent.
WINCHESTER BLVD 15350/VILLA FELICE/PLANNED DEVELOPMENT (11.09)
Motion by Mr. Pirzynski, seconded by Mr. Attaway, that Council accept and file report from
Planning Commission recommending denial of Planned Development Application DEV-97-
006; Project Application PRJ-98-130; and Negative Declaration ND-98-0010. Carried by a
vote of 4 ayes. Mr. Hutchins absent.
TC: D11: M M060799
2
Assam INVESTMENTS
Real Estate Services
MAXIM
September 8, 1998
Honorable Mayor Linda Lubeck and Town Council
Town of Los Gatos
110 E. Main Street
Los Gatos, CA 95030
Re: Planning Commission request for "Clarification of Town Council's policy
regarding development in the North Forty area prior to adoption of the
North Forty Specific Plan."
Dear Mayor Lubeck and Council Members:
Please consider the following serious concerns we have about the September 8, 1998
Council report addressing the above mentioned subject:
• The report does not address the fact that the Town currently has sufficient criteria in
place for evaluating development applications in the "North Forty". Land use and
design criteria exist in the form of the "Route 85 and Vasona Light Rail Element" and
the Los Gatos Boulevard Plan and Design Standards.
• The distribution list does not include all "North Forty" property owners. An urgency
interim ordinance should not be discussed or considered until all affected property
owners are noticed.
• The General Plan Committee and Town staff encouraged us to file a Planned
Development Application on the North Forty. Now that the Planning Commission
has considered our application, it appears that it is the target for an urgency interim
ordinance.
Sincerely,
./6,e/g
William F. Hirsc man
President
1540 Parkmoor Avenue
Suite D
Snn Jose, California 95128
468/938-6716
fax 4O8/938-6720