As part of The Daily Transcript's special report on San Diego’s economy, we polled a number of local business leaders, each of whom participated in a roundtable discussion in 2012. We asked each business leader the following questions:
What are the major challenges facing your business in 2013?
What is your forecast for San Diego's business climate relative to your industry?
Here are their responses.
The major challenge facing my business as a leasing agent for commercial real estate is the lack of overall business growth in San Diego. While there are success stories, the majority of companies in San Diego are concerned about the future, and are delaying decisions and/or shrinking their footprint. This has prevented much of the vacant space in San Diego from appreciably leasing and stagnated rents, and values of office, research and development, and industrial real estate.
I would like to be optimistic, but I think 2013 will be much of the same as 2012. Small pockets of activity and a few companies doing well, but the general marketplace continuing to struggle to make progress. We need a new industry that will drive optimism and hiring across a broad spectrum. And that industry has yet to materialize. – Jay Alexander, National Director, Jones Lang LaSalle Americas
(From the perspective of) a business and economic consulting and forecasting institute, and as the economic advisory unit for the State of California Controller, the major challenges we face are continued uncertainty created by the political climate and lack of decision-making at both the state and national level. This creates a “fog” over effective forecasting and advice for our clients and citizens of California, which we attempt to offset by creating multiple scenarios for research for our clients. A second mandate for our institute is career and professional development for our undergraduate and MBA students, and the reluctance of many employers to make new hires means that additional staff resources and time must be committed to ensure we are placing our business graduates in the best possible internships and employment settings.
For us, the business and economic consulting services we provide to the region is very brisk, and we are expanding our operating platform by locating our consulting functions at the newly renovated Liberty Station Conference Center in January 2013. This will allow us to offer a much easier location to meet with clients and enhanced space for working on projects, holding meetings and events, and related tasks. We see that the need for actionable economic analysis and presentations for the multiple stakeholders on projects, initiatives and operations is being appreciated and desired much earlier in the life cycle of projects. By providing San Diego businesses, organizations, entrepreneurs and nonprofits we serve these value-added opportunities, the need for our industry services is likely to grow in 2013. In an era of scarcity of resources and higher accountability on the economic viability of projects, we believe we provide a valuable service to our community, region and state. – Randy M. Ataide, Professor of Entrepreneurship, Executive Director, Fermanian Business & Economic Institute, Point Loma Nazarene University
The indecision of the impending “fiscal cliff” and the potential impact either way. Higher taxes usually means higher inflation, and so the consumer will be asked to dig deeper to maintain their standard of living. In retail commercial real estate, the jury is still out as to which tenants will make it through the recession. Value tenants like Wal-Mart and Target are aggressively expanding, but there are many niches (books, electronics, sporting goods) that are having a difficult time competing. In fact, many of them are downsizing to become more efficient.
Because San Diego has a high barrier to entry area (difficult to get entitlements and zoning) in retail leasing and sales, many retailers do very well here. So there is actually a shortage of well-located retail shopping center space available today. That portends well for strong shopping center locations with a solid roster of anchor tenants. – Stephen E. Avoyer, President, Flocke & Avoyer
The major challenge facing the legal profession is the lack of court funding, due to budgetary issue.
The impact on San Diego's business climate is that if the funding situation is not fixed to assure proper funding to the courts, the legal industry will substantially slow. This will, in turn, injure the client’s business because they will be unable to get the relief needed from the wrongdoing. – Vincent J. Bartolotta Jr., Managing Partner, Thorsnes Bartolotta McGuire LLP
Our major business challenge in 2013 is the continued economic impact of the ongoing recovery. We’d like to see a normalization of governmental regulations and economic factors that would continue to foster the growth of the private commercial real estate sector.
The construction industry will have ups and downs again in 2013. Sectors that are picking up growth-wise, include residential (single and multifamily), health care, senior living, education and general business. Declining sectors include heavy-highway and federal projects. – Jeff Bingham, Chief Executive Officer, Bingham Construction
The largest challenge today, being an adviser to a large-asset class, such as commercial real estate, is dealing with the macro uncertainties. Decision makers base their moves on risk and reward, and with uncertainty comes higher risk. This leads to fewer transactions and fewer bold moves. Our clients look to us for insights into the market. They need us to see trends and uncover opportunities. With uncertainty, it becomes almost impossible to read the “tea leaves” with any logic or rationale. With all of the uncertainty surrounding the eurozone, the election, and now, the “fiscal cliff, it puts advisers in a difficult situation. But, we continue to conduct" our business and move forward, we think positively about when and what the clarity may be, and we focus on our tasks at hand.
Assuming the issues in Washington are worked out expeditiously and prudently, we expect 2013 to be a good year for the commercial real estate market. Commercial real estate in San Diego will continue to be an attractive place for institutional investors to place their money in 2013. There will be fewer distressed sales, but traditional investment-sale activity should continue at a decent pace. Leasing activity should continue at a healthy pace, as well. There will remain creative and attractive deals to be done for tenants who don’t need to be in large Class A projects in the core markets. Given that no speculative office product will be delivered in 2013, it should bode well for landlords who have vacancy to fill in 2013. – Dan Broderick, President & CEO, Cassidy Turley San Diego
The challenge for my business continues to center on how best to provide high-quality legal services for clients in a timely and cost-effective way.
My business activity will likely track the overall San Diego business climate, which I expect to continue to improve at a steady pace. – Michael Brown, Shareholder, Stradling Yocca Carlson & Rauth, P.C.
We face uncertainty related to the “fiscal cliff,” tax policy, the impacts of health care reform and the effects of related new regulations on private investment/development. We are also concerned about what effects new tax policies related to deficit reduction will have on defense spending. We compete in an increasingly competitive marketplace, with very tight margins, yet very high expectations. In one key area of our markets, design-build delivery, we are concerned about the cost of the pursuits. Many of these pursuits are putting a big financial strain on our design partners in particular, and the owners are asking for between 50 to 100 percent design drawings — these drawings are very close to the actual construct documents and the architects are not receiving the benefit of a stipend. This is unsustainable. On the positive side, we are seeing many projects out there to pursue, in a variety of markets.
The education market (both higher education and K-12) continues to offer opportunities as a result of state and local bond measure passage. We see continued growth in the education market (both higher education and K-12) with the passage of various state and local bond measures. We also anticipate some opportunity in the military construction market, despite potential Defense Department cuts. This is because of the nature and size of the Department of Defense footprint in San Diego County. We are also seeing an increase in the local multifamily housing market. Regionally, we have noticed increased activity with our mission-critical and corporate market-sector clients. The energy retrofit, biotech and health care, and corrections markets are also poised for growth.
– Brian H. Cahill, President-Southwest Division, Balfour Beatty Construction
Two challenges: A slow recovery in which small-business demand for SBA loans is weak; and lack of Congressional action to ensure certainty for small businesses with regards to government operations and taxes.
San Diego suffers from being a part of California with a poor business climate and high taxes. Nevertheless, California is a significant market and we will continue to help small businesses that are looking to grow and create jobs here.
– Kurt Chilcott, President & CEO, CDC Small Business Finance
We have a positive outlook for 2013. A major challenge for Bop Design is managing growth. We want to grow at a responsible rate so that we can still make our clients happy and not alienate employees because they are overworked with too many projects.
Decisions on key hires is going to be a major challenge. As we ramp up business development, do we have the right service delivery people in place to execute on new projects? As a firm with five full-time staff, each employee is 20 percent of our work force. Because of that, we cannot afford to "miss" on any new hires. We plan to utilize personality assessment tools and hiring consultants to ensure that we hire the right people for the right positions.
San Diego small businesses are spending money on marketing — which is a good sign and shows there is a positive outlook. We see more and more professional services firms allocating marketing dollars on social media, specifically LinkedIn. They realize that LinkedIn is a valuable tool in opening doors, prospect vetting and thought leadership. We are being engaged by accounting firms, law firms and insurance firms for social media. A few years ago, there was much skepticism of social media marketing among professional services firms.
– Jeremy Durant, Business Principal, Bop Design
The primary business of Evanco Realty Advisors Inc. is the professional asset and property management of commercial investment properties, primarily as a fee manager. As we roll into our 20th anniversary and look into the future, we recognize our client relationships are more important than ever. We are continually evaluating our menu of services to assure we are meeting and exceeding our client’s property needs in this changing economy. Uncertainty is the biggest challenge facing the commercial real estate industry for 2013. With uncertainty brings “let’s do nothing” and simply hold down the fort. This is not good for our business, overall. All indications lean to a slow recovery and growth for the next several years. A challenge that must be met now is how to gradually increase current investment property values in an attempt to recapture the loss of values over the past several years due to many factors. This will be especially true if you have a loan coming due soon. This will require a delicate balance between tenants and landlords. Communication between the two parties is more important than ever — “know your tenants.” A landlord must be competitive and at the same time provide value to their tenants. Opportunities for commercial real estate investors, property managers, lenders and brokers require one to know your asset class and target, and know your specific geographic area. Know what you are good at and then plan your work and work your plan.
There appears to be little good news on the immediate economic horizon. We in commercial real estate must be creative, as there will be some opportunities that will surface. Affected by local, regional, national and world politics, and current events, our industry will remain pretty much the same as it was in 2012. Owners and investors will need to re-evaluate their goals for 2013. In most business sectors downsizing will continue, which impacts commercial real estate. There will continue to be some opportunities in San Diego within the larger institutional quality asset classes that have a property value exceeding $40 million. San Diego, with its overall appeal, combined with a diverse economy made up primarily of entrepreneurs vs. corporate giants, will be creative and adjust to whatever beholds us down the road. San Diego is not insulated, but will continue to be creative and flexible to adjust and seek new opportunities in 2013 and beyond. As our company rolls into our 20th anniversary in 2013, we feel our excellent client relationships, our many years of experience combined with patience, persistence and professionalism, will allow us to have a very good 2013. – Craig S. Evanco, President & CEO, Evanco Realty Advisors, Inc.
As a major acquisition command for the U.S. Navy, a large challenge for SPAWAR today is the unknown nature of our fiscal environment. When you deal with very large programs that often have long development timelines, the uncertainty of a yet-to-be-clarified budget environment can cause costs to rise and planning to be extremely difficult. This is not a new problem, but one that is more pronounced when our industry partners are unsure about their fiscal future. On a positive note, we are aware that the country's leadership is working vigorously to define the future environment that we will be operating under and removing the ambiguity.
SPAWAR is the U.S. Navy's command responsible for acquiring, managing and installing information and communications technology systems for the fleet. San Diego is a technology hub and the overall strength of the business climate is positive. The current focus of U.S. strategy on the Pacific region increases the assets and focus on not only DOD-related industry in San Diego, but business in general. As more diplomatic activities, security assistance and military forces focus on the Pacific region, the added training and interaction will have a positive impact on the business climate. – Scott Hoffman, Captain, SC, U.S. Navy
The challenge facing our industry — property management — for 2013 remains job increase. New jobs. New employment. Because new employment will drive the demand for leasing of existing office space. It will also drive not only increased occupancy in the retail buildings, but drive retail business, as well, for the actual shop owners who have been just devastated over the past four or five years. So, jobs is really going to be the No. 1 item that will be the biggest challenge remaining for our industry.
I don't think that need (for new employment) will be met to the degree it needs to be (in 2013), because of the hangover from the poor economy and the lack of a strong recovery. But, for Meissner Jacquét, we've taken advantage of this downturn and turned it into a positive. We have improved our platforms, increased our efficiencies and have learned to operate and think more efficiently, resulting in a more cost-efficient and more personnel-efficient company through technology. The professional vendors that we work with have not increased their fees in years, but yet their health insurance costs increase, their operating expenses go up and they, too, have learned to be more efficient. Many firms have not been able to to accept this efficiency challenge to change their paradigm, but that's what it has taken, to not only survive, but to come out of this downturn ahead of the competition and in a position to provide better services to our clients and tenants. – Jerry H. Jacquét, Principal, Meissner Jacquét Investment Management Services
Early 2013 may be marked by questions and uncertainty driven by budget uncertainty. Our defense clients are facing uncertainty in their budget outlook for the balance of Government Fiscal Year 2013 and beyond, which may delay new programs or initiatives. We are seeing a greater focus across the Department of Defense and throughout the federal government on preserving, prolonging, and enhancing existing systems and capabilities, rather than developing new ones. We anticipate a greater focus on platform modernization and rapid prototyping to put solutions quickly into the hands of operators, rather than commencing new long term acquisition programs.
Our success in San Diego will be driven by how well we help our clients deal with this new budget reality, while continuing to ensure that the fleet has the C4ISR and Information Technology capabilities it requires to perform its mission. The rapid evolution of IT, coupled with emerging threats ensures that our clients will continue to need faster and more reliable communications for the foreseeable future.
As we look ahead to 2013, we must be diligent as always, and there is less margin for error in the current fiscal environment.
Booz Allen’s 2013 San Diego outlook is extremely promising. There is new work on the horizon in the region, including recent contract wins from the Space and Naval Warfare Systems Command (SPAWAR) to provide a wide range of professional services. As of Nov. 30, 2012 Booz Allen acquired the Defense Systems Engineering Support (DSES) division of ARINC Inc. Since San Diego is such a hotbed of IT engineering and technology, this acquisition, which builds on Booz Allen’s existing engineering strength and adds scaled and specialized expertise in C4ISR, prototyping, and analytics, positions Booz Allen, along with our San Diego clients, for a strong and growing future. DSES will enhance our engineering capabilities as we continue to support SPAWAR and other regional clients.
We’re also looking forward to opportunities to discuss topics of local and national importance in 2013. This year, we joined stakeholders to discuss engineering services, cloud-based services, and issues related to Health care through forums like The Daily Transcript’s roundtable Sseries. From rapid prototyping to finding the value in big data, we were able to dissect and discuss what these issues mean for our clients and how we can approach them. We look forward to a productive year — one that lets us apply our expertise in areas ranging from systems engineering and integration, to cyber defense and other solutions, to help solve our clients’ toughest challenges.
– David Karp, Senior Vice President & Marty Greene, Vice President, Booz Allen Hamilton
The ever-increasing federal regulation requirements and the continued softness in the San Diego economy (are the major challenges facing our business in 2013).
The continued high degree of liquidity in the banking system, which makes for extreme competition and margin compression.
– Tory Nixon, San Diego Division President, California Bank & Trust
The legal profession is experiencing more change through this recession than at any time over the past 40 years. Technology is impacting how and the speed with which legal work needs to be accomplished, which creates its own challenges. The decrease in demand for legal services due to the depth of the recession, the cutback in court funding — which has increased significantly the time cases take, and therefore the cost — and the slow transaction velocity is negatively impacting everything we do. The most unusual situation is the decrease in litigation matters. This is happening throughout the country and is considerably different than in the prior recessions over the past 40 years. Litigation has always been considered counter-cyclical, but that is not the case with this recession.
Regarding San Diego's business climate relative to the legal industry, I forecast more of the same. The uncertainly coming from Washington is constraining business activity, and is certainly causing considerable anxiety in the economy. Until there is more certainty with taxes and regulation, businesses are not in a position to plan for the future. – Darryl Solberg, Principal, Hecht Solberg Robinson Goldberg & Bagley LLP
Access to capital in order to grow our business is a challenge because of the current economic climate and dealing with the uncertainty of the economy based on an election that was anticlimactic. Now we are faced with the “fiscal cliff.” We need to get this behind us, so that this country can move on so decisions can be made.
Being in the technology industry, we will continue to see growth because technology needs to do two things for a business: increase profitability and give a competitive advantage. An extremely large backlog of legacy technology exists in small-and medium-sized businesses. This legacy technology is no longer supported and will need to be replaced in the next couple of years. Our industry is expected to grow 20 to 30 percent, year over year, for many years to come.
– Dale Stein, Co-founder, Technology Assurance Group
Continued consumer and small business uncertainty — with regard to the rules that they will have to play by in the coming years — remains the largest challenge, as many individuals and business entities defer financial decisions for all the obvious economic and politically driven reasons.
Uncertainty and “fiscal cliff” aside, we have seen a small, but definitive, pickup in small-business activity and a returning demand for credit. On the consumer side, we see that pent- up demand is resulting in more auto loans — as our members’ vehicles wear out. The residential market has stabilized due to the shortage of inventory, but we also note that short sales have surpassed foreclosures as the preferred “disposition choice” for troubled borrowers. As home values continue to increase, more and more borrowers will reach a position where they can either conventionally refinance their existing loan to obtain one of today’s lower rate products, or potentially sell their home — pulling out enough equity to move up to a newer or larger house. Either way, the improving market provides good opportunity for lenders.
– Jeff Stone, Executive Vice President and Chief Credit Officer, North Island Credit Union
All startup businesses face a continued challenge of accessing capital. Delays implementing the JOBS Act only exacerbate this situation.
In 2012, San Diego startups have greatly increased their share of the venture capital allocated. We hope to see that grow again in 2013 – David Titus, President, San Diego Venture Group
We are very fortunate that our biggest challenge is growth. We will open our second office this month located in Indian Wells, Calif. The most conservative estimate has us doubling in revenues in 2013. We will probably add 10 more employees in the coming year. Our main concern is how to grow smart, especially at such a rapid rate.
I think the construction industry as a whole will continue on the same trajectory of slow growth we have seen throughout 2012. This growth has been tracked by The Daily Transcript's graphs of economic indicators throughout the year. I personally think the slow growth has business owners wary of hiring decisions. In the construction industry, there is still a lack of anchor projects that would lead to hiring. Most of the projects on the market are of the one- to three-month variety in duration. While this keeps contractors busy, it is hard to justify hiring new employees when the project has such a short duration.
– Jody James Watkins, CEO/President, Watkins Landmark Construction