Expansion under way at San Jose's Santana Row

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Santana Row in San Jose Friday Nov. 12, 2010. Several years after it first opened, many residents of the development say they love living there. (Photo by Patrick Tehan/Mercury News)

San Jose's Santana Row is preparing a fresh expansion of its residential, office and retail space, bolstered by brisk activity such as a recent deal for H&M to take over the old Borders bookstore site.

The South Bay's robust economy has prompted Federal Realty Investment Trust, the principal developer of the upscale commercial and residential complex, to lay the groundwork for new construction on the property.

"Silicon Valley clearly has led us out of recession," Don Wood, CEO of Federal Realty, said in a recent conference call with analysts. "The first bits of strength that we saw and continue to see come out of Silicon Valley."

First up is construction of 212 rental homes in what's described as a

resort-style community near Pasta Pomodoro restaurant. Once these homes are completed in the second half of 2013, Santana Row will have 834 homes, of which 615 would be rentals.

Next, the developers plan a large new office complex at the southeast corner of Winchester Boulevard and Olsen Drive.

Meanwhile, clothing retailer H&M has leased the entire 27,000-square-foot, two-story building that once was occupied by a flagship Borders store.

The deal represents a big expansion for H&M, which will triple its space at Santana Row, where it currently occupies 8,000 square feet.

"Santana Row is doing quite well," said James Chung, a partner with Terranomics, a commercial realty brokerage. "And the H&M deal is a

great sign for the retail market."

Construction on the new residences, designed to evoke a Mediterranean feel, began earlier this month.

"The demand to live on The Row is high and we believe the time is right to increase our residential offerings," said Jan Sweetnam, chief operating officer for Federal Realty's West Coast markets.

Federal Realty executives said a South Bay economy that during 2011 produced 26,000 jobs -- more than half of the 46,000 jobs created in the entire Bay Area -- is the big driver in the development efforts.

"It's why we have now moved forward very quickly on the second residential piece," Wood said. "It's why we got some great traction going on right now" in the retail and office elements.

Santana Row's 645,000 square feet of retail is 94 percent leased, its 100,000 square feet of office space is 100 percent leased and its existing 627 residences are 95 percent occupied.

"If this market continues the way it's going, in the next four or five years we should be built out," Wood said.

Santana Row could add another 200,000 square feet of retail and office space. And beyond the 212 residences now under construction, the project could add 348 more homes, for a potential grand total of nearly 1,200 residential units.

"With so many high-end retailers, you would have thought Santana Row would have struggled. But it's actually been the opposite," said Jake Randolph, a realty broker with Cornish & Carey Commercial. "Like everyone else during the downturn, Santana Row had some turnover. But they have been able to fill their key spaces."

And much as the South Bay has been an island of economic strength amid weakness elsewhere in the state and nation, Santana Row and the adjacent Valley Fair mall appear to have dodged the worst of the sour times.

"Santana Row is a regional draw," Chung said. "The restaurants are always full. You see people shopping. If you looked at Santana Row and Valley Fair, you wouldn't have been able to tell that the rest of the world was falling apart."

Contact George Avalos at 925-977-8477. Follow him at Twitter.com/george_avalos.

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Expansion under way at San Jose's Santana Row