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Companies continue to choose San Diego

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With a hot news cycle about companies leaving San Diego for “business-friendly” cities in Texas, the companies that choose to stay in or relocate to San Diego get less attention, which begs the question, are we getting the full picture?

So, before grabbing the proverbial pitchforks and torches, consider this: San Diego continues to maintain its status as one of the largest economies in the world, with below-average unemployment, above-average wages and educational attainment and continued in-migration.

Global real estate services firm JLL (NYSE: JLL) studied this issue, with the goal of offering a broad-picture perspective.

“We’ve all heard the stories, and even though we at JLL are on the front lines of the commercial real estate comings and goings, it’s easy even for us to start thinking the sky is falling,” said Jay Alexander, managing director of JLL’s San Diego office. “After delving into the facts and figures, however, which support San Diego’s incredible vibrancy as a business center, we concluded that energy would be better spent on determining what motivates so many companies to stay put in what is commonly viewed as a very costly place to do business, and what we as a city and state can do to help.”

The research team at JLL gathered substantial macroeconomic and demographic evidence that San Diego is still attractive to corporate occupiers. Illustrating this point, many major corporate players have recently renewed their commitments to San Diego.

San Diego performs well in job creation, which is always an important factor in determining the strength of a commerce center. The region added jobs every month since late 2010 with only one exception, and the jobless rate in San Diego currently sits at 6.0 percent, far lower than the statewide rate of 7.3 percent and only 10 basis points off the national rate.

In just the last 12 months, nearly 30,000 new jobs have been added in San Diego and 113,000 since the end of the most recent recession, which is 14,900 more than the city’s peak pre-recession base. Wages in San Diego average $51,890, 11 percent higher than the national average.

Additionally, San Diego recovers faster from recessions than the norm -- since 1980, San Diego’s annual job growth has averaged 2.7 percent, 80 basis points above the national average.

“One reason for the faster recovery is that the San Diego market is well-stratified in its output, with financial services, professional and business services, education, durable goods and retail trade,” said Eli Gilbert, vice president and director of research Southwest for JLL. “Also, despite defense budget cuts, San Diego still has one of the largest naval fleets in the world, further diversifying our industry mix.”

One interesting and often overlooked metric is that companies in San Diego occupy more office and industrial space today than ever, and this trend continues to increase every quarter. The Gross Metropolitan Product has risen nearly every year since 2001 and is now 55 percent higher at $177 billion in output, outpacing national Gross Domestic Product growth by 160 basis points.

San Diego has a higher percentage of residents with college degrees than other cities that have been labeled as relocation destinations. Courtesy image

Also germane to the strength of the local business climate, California continues to add new residents every year, with 242,000 added since 2010. Though other states with greater influx such as Texas are posting higher migration numbers (577,000 since 2010), California is still an incredibly attractive state for new residents, especially those coming from international locales.

Like its home state, San Diego also continues to draw new residents, despite a slowing of in-migration. Population grew by 3.8 percent since 2010, compared to U.S. growth of 2.2 percent in the same period. This growth was led by international in-migration and births, indicating a strong draw to the region from overseas for skilled labor.

“Compared to other major California markets, as well as those in Arizona and Texas that are common relocation options for tenants, perhaps one of the strongest advantages for San Diego is our high rate of educational attainment,” said Eileen Tumalad, senior research analyst at JLL. “San Diego boasts the higher percentage of residents with college degrees (undergraduate and post-graduate) of many of the cities touted as relocation destinations in the media.

Even Texas can’t dispute that California still has the most Fortune 500 companies, despite the buzz around companies leaving the state. Companies that have recently renewed their leases or expanded within San Diego include Qualcomm (Nasdaq: QCOM), Petco, LPLFinancial (Nasdaq: LPLA), Sony (NYSE: SNE), Provide Commerce/ProFlowers, Northrop Grumman (NYSE: NOC), General Atomics and NASSCO.

“What we find in working with our clients and colleagues is that corporate tenants realize the value proposition that San Diego offers for the right industries,” Alexander said. “For companies that are involved in today’s information and tech industry, it’s not solely about the labor and tax costs. It’s about the educated population, huge network of local universities, symbiotic industry relationships and an environment where employees thrive and want to raise a family.”

He added that while the hype of relocating industries may be overblown, San Diego and California shouldn’t rest on their laurels -- or their weather -- to maintain a strong economy.

“With so many brilliant people working together in one region, we need to dedicate some of that combined brain power and activity to creating zoning and land policies that encourage economic growth,” Alexander said. “When forward-thinking cities like San Francisco have expedited the real estate development process while not losing focus on maintaining the quality of life, the results are astounding. By removing the current uncertainty of development fees and development timing and using the fees that are collected to provide better infrastructure (affordable housing, public transportation and better roads), San Diego can continue to offer the lifestyle we love with a robust business environment.”

Alexander added that economic development agencies and chambers of commerce, especially, have a very important role to play and should continue to increase their involvement in these matters.

-Whitelaw is a senior consultant with TW2 Marketing.

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