Commercial Real Estate in San Martin: Use Permit Areas, the 101 Interchange and Rural Limits

By Matthew Martinez, Founder, CEO & Managing Broker, Diamond Real Estate Group. California DRE #01869679.

San Martin is an unincorporated South County community between Morgan Hill and Gilroy, and its commercial property is a small, tightly defined set of sites: a local-serving commercial area, a light industrial area, land near the San Martin Avenue interchange on Highway 101, and older businesses on Monterey Road. Santa Clara County controls all of it, and the County’s San Martin policies are written to keep the community rural. Confirm the zoning, combining district and septic status for each parcel with the County Department of Planning and Development before relying on this page.

Who controls the parcel

San Martin has no city government; the County Board of Supervisors governs it, and the County General Plan’s San Martin planning area policies set the rules. The planning area runs from Maple Avenue on the north to Masten Avenue on the south, between the east and west foothills, excluding land annexed to Morgan Hill. Its central policy is that San Martin stays a rural community, mostly nonurban and residential, with attention to preserving its village core. A Board-appointed San Martin Planning Advisory Committee advises the County on local applications. For countywide rules, see our Santa Clara County commercial guide.

San Martin zoning for commercial and industrial use

Commercial and industrial uses in San Martin mostly run through a County combining district layered over the base zones.

Area or district	Intended uses	Notes
-sm Commercial Use Permit Area	New or expanded local-serving commercial	Use permit and architecture and site approval; no hotels, motels or billboards
-sm Industrial Use Permit Area	New or expanded light industry	Use permit and site approval; no intensive manufacturing, butcheries, petroleum distribution or recycling
Interchange area east of Murphy Avenue	Commercial serving more than the local community	Exempt from the local-serving limit; design guidelines apply
RS Roadside Services	Clustered highway-serving uses	No new RS designations in San Martin without a policy change or master plan
RR Rural Residential	Rural homes with agriculture and open space	Most of the planning area; 5 to 20 acre slope-density formula
Legal nonconforming uses on Monterey Road	Existing businesses south of Metcalf Road	May continue; new service uses not extended

The -sm Use Permit Areas

Chapter 3.90 of the County Zoning Ordinance, adopted by Ordinance NS-1200.362 on December 5, 2017, lets the County approve nonresidential uses in two mapped areas that the base zoning would not otherwise allow. Where the -sm rules conflict with the base district, -sm controls.

Commercial Use Permit Area. New or significantly expanded commercial uses need a use permit and architecture and site approval, and are reviewed for size, scale and intensity to confirm they are local-serving. Billboards, seasonal outdoor entertainment, hotels and motels, and industrial laundries are prohibited.
Industrial Use Permit Area. New or significantly expanded light industrial uses need the same two approvals and may face extra setbacks and buffers. Butcheries, industrial laundries, intensive manufacturing, petroleum products distribution and recycling facilities are prohibited. The General Plan bars heavy industry outright and requires uses near Llagas Creek to prevent waste discharge.
Design. Every new use must conform to the San Martin Integrated Design Plan and Guidelines.

The interchange, Monterey Road and growth limits

Interchange exception. Properties east of Murphy Avenue next to the San Martin Avenue and Highway 101 interchange are exempt from the local-serving test, making them the one place in San Martin where a business can draw regional or highway traffic.
No new roadside commercial. The General Plan allows no new Roadside Services designations unless the policy is amended or a master land use and infrastructure plan is adopted.
Tight boundaries. Use permit area expansions are limited to parcels directly next to the existing boundary and cannot add significant outside traffic. The County may stop accepting private boundary expansion requests.
Monterey Road. Legal businesses already fronting Monterey Highway south of Metcalf Road can continue, but the County will not extend service uses along the road, to avoid strip commercial.
Master plan first. A master plan covering land use, fire protection, streets, water, sewer and drainage must be adopted before any significant increase in intensity or change in minimum lot sizes.
Scenic Highway 101. Under the County’s scenic roads rules, buildings and signs along US 101 must stay 100 feet back from the right-of-way where the -sr designation applies.
Airport. Changes to South County Airport policies or facilities require prior review with San Martin residents and owners, and airport-area parcels may face extra review.

Septic, groundwater and flood constraints

Wastewater is usually the deciding factor for a San Martin business.

Septic. Commercial and industrial septic systems must meet County regulations. High-wastewater uses such as restaurants and motels need special treatment devices and Regional Water Quality Control Board approval.
Creek soils. No new septic systems are allowed in high-permeability soils near Llagas Creek, and floodways and flood hazard zones restrict activities that add septic or nitrate loads.
No sewer yet. Private projects cannot connect to a sewer until an area-wide infrastructure plan is approved.

Transfer tax, business tax and property tax

San Martin has no city tax. Santa Clara County’s documentary transfer tax is $0.55 per $500 of value, excluding liens that remain on the property. A change of ownership generally triggers Proposition 13 reassessment. We did not verify any unincorporated business license tax.

Due diligence that matters in San Martin

Start with our commercial due diligence checklist, then add:

Confirm the base zone and whether the parcel carries the -sm designator, and in which area.
Check that the planned use is not on the -sm prohibited list and can pass the local-serving test, unless it is east of Murphy Avenue at the interchange.
Get the septic permit history, soil conditions and any Water Board approvals.
On Monterey Road, document the legal nonconforming status of an existing business.
Check flood zones and proximity to Llagas Creek.
Review the Integrated Design Guidelines before planning exterior changes.

Questions people ask

Can I build a hotel in San Martin?

Not in the Commercial Use Permit Area, where hotels and motels are prohibited.

What businesses can locate near the Highway 101 interchange?

Properties east of Murphy Avenue next to the San Martin Avenue interchange are exempt from the local-serving limit, so larger commercial uses can be considered with permits.

Can a new shop open on Monterey Road?

Existing legal businesses can continue, but the County will not extend new service uses along the road.

Is there sewer service in San Martin?

Private projects cannot connect until an area-wide infrastructure plan is approved; most sites rely on septic.

Who approves commercial projects?

The County, through a use permit and architecture and site approval, with input from the San Martin Planning Advisory Committee.

What industrial uses are barred?

Intensive manufacturing, butcheries, industrial laundries, petroleum distribution and recycling facilities.

Does Diamond handle commercial property in San Martin?

Contact Matthew Martinez to discuss buying, selling or leasing commercial property in San Martin.

Sources & notes

Note: We did not review the Integrated Design Guidelines, the zoning map, airport land use plan or the General Plan policy text R-LU 120 to 131 directly. Whether the -sr designation applies to a given US 101 frontage was not confirmed.

This page is general information, not legal or tax advice. Last reviewed October 2026 by Matthew Martinez.

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