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San Jose economic briefing: modest growth, hotel and office still below pre‑pandemic levels; sales tax concentration grows
Summary
Deputy director of economic development presented national, state and local economic indicators: small Q1 GDP contraction nationally, sales‑tax softness, hotel occupancy and ADR below pre‑pandemic levels, office availability high, and local income inequality and job shifts raising concerns for revenue and housing demand.
The City of San Jose’s deputy director for economic development delivered a broad economic outlook on May 7, summarizing national, California and local indicators staff used to inform the FY25–26 budget.
The presentation described a modest contraction in national real GDP in Q1 2025 (−0.3 percent), easing inflation and steady Federal Reserve rates; staff also highlighted the near‑term uncertainty created by recent federal tariff actions. At the state level, the briefing noted persistent housing unaffordability, a high cost of living, trade‑policy effects on ports and labor‑market shifts tied to recent tech layoffs.
Locally, staff said the city’s development pipeline includes roughly 3 million square feet of approved industrial space, about 2,000 hotel rooms, approximately 23,000 housing units in various stages of review or approval, and more than 28 million square feet of commercial development. San Jose’s regional median salary was reported at about $168,000 in 2024, but staff emphasized that the region’s cost of living and housing costs remain far above national averages.
Deputy Director Blaude Zlalich said San Jose’s sales tax base is concentrated: business‑to‑business transactions account for a larger share than typical jurisdictions, and the top 100 local sales‑tax generators now produce more than 52 percent of total city sales tax receipts. Staff reported local sales‑tax receipts declined about 1.2 percent in calendar year 2024 compared with 2023, with transportation‑related categories notably weak.
The briefing portrayed uneven commercial markets: office availability rates were presented near 18 percent, while flex and industrial sectors showed stronger absorption. Hotel metrics remain below pre‑pandemic levels, with occupancy around 67 percent and an average daily rate near $170 (compared with about $199 in February 2020).
Staff reviewed employment data for the metropolitan statistical area, noting an unchanged preliminary unemployment rate of 4.1 percent and a net regional loss of roughly 6,000 jobs year‑over‑year in sectors including professional and business services, manufacturing and construction, partially offset by gains in health care and government. Economic disparities were highlighted: a disproportionate share of unemployment and lower‑paying occupations are borne by Black or African American and Hispanic or Latino workers.
Zlalich and staff framed the outlook as one of heightened uncertainty and persistent structural challenges — notably housing affordability and access to capital for small businesses — and said those conditions informed conservative revenue assumptions in the proposed budget. The presentation concluded with staff noting the importance of job and revenue creation for long‑term fiscal stability and the city’s role in supporting workforce retention and inclusive prosperity.
