A Summary of the San Diego Regional Economy Brought to you by San Diego Regional EDC analyzes key economic metrics that are important to understanding the regional economy and San Diego s standing relative to other major metropolitan areas in the U.S. This issue covers data from the July 2015 to October 2015 quarter. Highlights San Diego County s October 2015 unemployment rate recorded the 6th largest drop among major metros. San Diego had the 8th highest employment growth rate from October 2014 to October 2015. The region added 40,300 jobs since last October, with 36,800 of those jobs coming from the private sector. San Diego had the second highest growth rate in degree holders among peers from 2010 to 2014. Residential rental rates in San Diego grew at a modest 5.4 percent from the previous year, the 8th highest among peer metros. The region recorded more than $1 billion of total office sales in Q3 2015 the highest volume since Q3 2007. In Q3 2015, San Diego received the most VC dollars since Q1 2008 more than $435 million from 33 deals. UNEMPLOYMENT San Diego metro ranked 15th in unemployment rate in October 2015, down five spots from last quarter (July 2015). San Diego s 5.0 percent rate is just above the U.S. rate of 4.8 percent. The year-over-year decline in unemployment remained a positive trend in the region. The rate fell by 1.0 percentage points, the 6th most among major metros. San Diego has continued to fare better than the state and other California metros in terms of the unemployment rate. Riverside and Los Angeles remain two of the three highest unemployment rates among major metros, and the region was well below the state average of 5.7 percent. Unemployment Rate: 25 Most Populous U.S. Metros RANK METRO OCT-15 OCT-14 PP CHANGE 1 Minneapolis 2.9 3.0-0.1 2 Denver 3.1 3.9-0.8 3 San Antonio 3.8 4.2-0.4 4 San Francisco 4.0 4.9-0.9 4 Dallas 4.0 4.5-0.5 6 Boston 4.1 4.6-0.5 7 Washington DC 4.3 4.7-0.4 8 Seattle 4.5 5.0-0.5 9 Saint Louis 4.6 5.2-0.6 9 New York 4.6 5.9-1.3 9 Pittsburgh 4.6 4.6 0.0 12 Tampa 4.8 5.7-0.9 12 Houston 4.8 4.4 0.4 - US 4.8 5.5-0.7 14 Philadelphia 4.9 5.5-0.6 15 San Diego 5.0 6.0-1.0 15 Portland 5.0 6.0-1.0 17 Chicago 5.1 6.0-0.9 18 Charlotte 5.2 5.5-0.3 18 Phoenix 5.2 5.8-0.6 20 Miami 5.3 5.8-0.5 21 Atlanta 5.4 6.5-1.1 21 Baltimore 5.4 5.7-0.3 23 Los Angeles 5.5 7.3-1.8 24 Riverside 6.3 7.7-1.4 24 Detroit 6.3 7.9-1.6 Unemployment Rate: California Comparison 14.0 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 San Diego s unemployment rate dropped 1.0 percentage point, 6th largest drop among major metros. Source: Bureau of Labor Statistics Seasonally Unadjusted PP = Percentage Point Riverside California Los Angeles San Diego US San Francisco Source: Bureau of Labor Statistics
EMPLOYMENT San Diego Regional EDC PAGE 2 San Diego experienced a small seasonal increase in employment in the July to October quarter. The region s 1.08 percent growth was 14th among major metros. Despite the comparative under-performance over Q3, most sectors of the private economy experienced quarterly growth, while government added 11,600 jobs due to seasonal employment trends in public and private education. The leisure and hospitality sector experienced some quarterly decline, likely due to hotels, restaurants and entertainment venues winding down from the summer season. Annual growth shows that the region s economy continued to have a positive 2015. San Diego recorded the 8th highest growth rate from October 2014 to October 2015. The region s employment grew by 2.95 percent, compared with the U.S. average growth rate of only 1.96 percent. While San Diego s overall growth is very positive, we continued to see explosive growth in one of the region s most important sectors. Professional, scientific and technical services (PST) is a sector of the economy very heavily associated with the region s innovation clusters. Many of the companies and much of the employment in clusters like biotechnology, biomedical products, cleantech and information technology fall within the PST sector. Employment in the region s PST sector grew by 7.3 percent since last October. Other key industries in the region experienced above average year-over-year growth. The construction sector continued to boom, adding 3,300 jobs or 5.0 percent growth. Real estate also showed some positive signs. The industry grew by 5.3 percent, adding 1,500 jobs. Leisure and hospitality, the industry most closely associated with tourism, added 5,100 jobs over the year and grew by 2.9 percent. Total Employment Growth: 25 Most Populous U.S. Metros RANK METRO % CHANGE YEAR OCT 14 - OCT 15 % CHANGE QTR OCT 15 - OCT 15 1 San Antonio 3.94% 1.50% 2 Portland 3.54% 1.50% 3 Atlanta 3.45% 1.55% 4 San Francisco 3.40% 1.65% 5 Charlotte 3.34% 3.29% 6 Riverside 3.29% 2.35% 7 Dallas 3.10% 1.19% 8 San Diego 2.95% 1.08% 9 Seattle 2.94% 0.08% 10 Tampa 2.81% 2.05% 11 Phoenix 2.69% 3.97% 12 Baltimore 2.46% 0.62% 13 Washington DC 2.26% 0.61% 14 Miami 2.24% 2.45% 15 Denver 2.23% 0.11% 16 Los Angeles 2.15% 1.77% - US 1.96% 1.33% 17 Detroit 1.96% 0.95% 18 Boston 1.91% 0.58% 19 Minneapolis 1.88% 0.45% 20 New York 1.70% 0.75% 21 Pittsburgh 1.32% -0.01% 22 Houston 1.15% 0.65% 23 Philadelphia 1.11% 1.45% 24 Chicago 1.10% 0.39% 25 Saint Louis 0.81% 1.40% Source: Bureau of Labor Statistics Ranked by % Change Year Employment by Industry (in thousands) INDUSTRY OCT-15 JUL-15 OCT-14 CHANGE PREV. QTR CHANGE PREV. YR %CHANGE PREV. QTR %CHANGE PREV. YR Total (Private and Government) 1404.7 1389.7 1364.4 15.0 40.3 1.1% 3.0% Total Private 1166.5 1163.1 1129.7 3.4 36.8 0.3% 3.3% Professional and Business Services* 243.8 242.2 233.2 1.6 10.6 0.7% 4.5% Prof., Scientific, & Tech. Services* 140.1 139.2 130.6 0.9 9.5 0.6% 7.3% Mgmt. of Companies & Enterprises 21.9 21.8 21.2 0.1 0.7 0.5% 3.3% Administrative 81.8 81.2 81.4 0.6 0.4 0.7% 0.5% Trade, Transportation, and Utilities 221.5 218.4 216.3 3.1 5.2 1.4% 2.4% Wholesale Trade 46.0 45.7 44.1 0.3 1.9 0.7% 4.3% Retail Trade 148.6 145.9 145.5 2.7 3.1 1.9% 2.1% Transportation and Utilities 26.9 26.8 26.7 0.1 0.2 0.4% 0.7% Education and Health Services 199.8 191.3 190.4 8.5 9.4 4.4% 4.9% Education Services 32.0 29.2 31.5 2.8 0.5 9.6% 1.6% Health Care and Social Assistance 167.8 162.1 158.9 5.7 8.9 3.5% 5.6% Leisure and Hospitality* 182.6 191.4 177.5-8.8 5.1-4.6% 2.9% Manufacturing* 98.6 99 97-0.4 1.6-0.4% 1.6% Financial Activities 73.2 73.3 71-0.1 2.2-0.1% 3.1% Finance and Insurance 43.6 43.8 42.9-0.2 0.7-0.5% 1.6% Real Estate and Rental and Leasing 29.6 29.5 28.1 0.1 1.5 0.3% 5.3% Construction 69.4 69 66.1 0.4 3.3 0.6% 5.0% Other Services 52.1 52.7 53.1-0.6-1.0-1.1% -1.9% Information* 25.1 25.4 24.6-0.3 0.5-1.2% 2.0% Mining and Logging 0.4 0.4 0.5 0.0-0.1 0.0% -20.0% Government 238.2 226.6 234.7 11.6 3.5 5.1% 1.5% Federal Government 45.8 45.8 45.7 0.0 0.1 0.0% 0.2% State Government 47.2 43.4 45.5 3.8 1.7 8.8% 3.7% Local Government 145.2 137.4 143.5 7.8 1.7 5.7% 1.2% PST services recorded the highest annual growth rate at 7.3 percent. Source: California Employment Development Department Italics = Supersector Ordered by largest Supersectors *Denotes industry sectors strongly associated with San Diego s Traded Economies
PAGE 3 SPOTLIGHT ON TRENDS IN TALENT Talent is the cornerstone of today s global economy. It drives corporate location decisions, encourages innovative urban planning and inspires entrepreneurship. In essence, talent is the key to economic growth. If regions such as San Diego want to get ahead, they must have the workforce to compete. In January, San Diego Regional EDC released Talent: Where San Diego Stands, a comprehensive study that contextualizes San Diego s standing in talent growth and retention with regard to highly-skilled engineering, science and tech talent in nine peer metros including Austin, Denver and San Francisco. By analyzing key factors for firms and site selectors and comparing key characteristics that attract talent, San Diego can better understand how to maintain its competitive edge. Among peer metros, San Diego ranks 2nd percent growth of degree-holding millennials (age 25-34) 1st concentration of scientific R&D firms and employment 3rd wages in sciences and engineering jobs 1st lowest average commute times 2nd average annual pay for R&D employees at $176,000 Some additional highlights from the study are below. To view the full report, including additional charts, best practices, action items, and sources, visit: sandiegobusiness.org/research
RESIDENTIAL REAL ESTATE PAGE 4 HOME PRICES San Diego remained the second most expensive for-sale home market in the U.S., according to National Association of Realtors. Home prices increased by about 1.2 percent in the San Diego region from the previous quarter and about 7.1 percent from the previous year. The quarterly growth rate was the 6th highest recorded among major metros, while the annual growth rate was 11th. RENTAL RATES San Diego recorded the 4th highest residential rental rates, according to the Zillow Rent Index. Rates went mostly unchanged from July to October in 2015. However, rates were up 5.4 percent in October compared to the previous year, which was the 8th highest annual rate of growth among peer major metro areas. Median Home Price: 25 Most Populous U.S. Metros PRICE % CHANGE FROM % CHANGE FROM RANK METRO 2015 Q3 PREV. QUARTER PREV. YEAR 1 San Francisco $809,400-1.4% 10.7% 2 San Diego $554,400 1.2% 7.1% 3 Los Angeles $506,800 13.8% 5.2% 4 Boston $420,800 1.5% 5.2% 5 New York $410,500 0.0% -0.4% 6 Washington DC $388,600-3.8% -0.1% 7 Seattle $386,300 0.3% 7.3% 8 Denver $353,000-2.7% 11.9% 9 Portland $319,300 1.4% 9.6% 10 Riverside $292,500 0.3% 6.2% 11 Miami $290,000 0.0% 7.4% 12 Baltimore $252,300-0.9% -1.4% 13 Philadelphia $234,700 1.3% 1.5% 14 Chicago $229,300-0.5% 3.4% - US $229,000-0.2% 5.5% 15 Minneapolis $228,700-0.2% 4.4% 16 Phoenix $218,800 0.4% 9.1% 17 Houston $217,200-1.8% 7.3% 18 Dallas $210,000-2.4% 8.5% 19 Charlotte $203,100-3.9% 9.8% 20 San Antonio $199,300-0.1% 6.9% 21 Atlanta $178,900-1.4% 6.8% 22 Tampa $175,000 0.0% 20.7% 23 Saint Louis $160,000 1.8% 6.5% Source: National Association of Realtors Note: Pittsburgh and Detroit not available Zillow Rent Index: 25 Most Populous U.S. Metros INDEX % CHANGE FROM % CHANGE FROM RANK METRO OCT-15 PREV. QUARTER PREV. YEAR 1 San Francisco $3,304 3.0% 15.2% 2 Los Angeles $2,484 0.4% 5.8% 3 New York $2,356 1.1% 5.3% 4 San Diego $2,314 0.0% 5.4% 5 Boston $2,240 1.3% 7.4% 6 Washington $2,112 0.2% 1.7% 7 Denver $1,945 1.5% 11.1% 8 Seattle $1,914 2.1% 7.4% 9 Miami $1,813 0.7% 4.1% 10 Baltimore $1,718 0.0% 2.1% 11 Riverside $1,686 0.8% 4.1% 12 Portland $1,675 2.1% 11.2% 13 Chicago $1,641 0.1% 1.4% 14 Houston $1,574 1.1% 6.4% 15 Philadelphia $1,559 0.4% 2.1% 16 Dallas $1,493 0.6% 5.3% 17 Minneapolis $1,504 0.4% 2.2% - US $1,381 0.2% 4.5% 18 San Antonio $1,308 0.6% 5.4% 19 Tampa $1,293 0.7% 5.1% 20 Atlanta $1,275 1.0% 5.0% 21 Phoenix $1,249 0.7% 4.5% 22 Charlotte $1,220 0.8% 5.2% 23 Detroit $1,130-1.1% 2.3% 24 St. Louis $1,121 0.4% 2.7% 25 Pittsburgh $1,096 0.6% 2.4% Source: Zillow ZRI Methodology: http://www.zillow.com/research/zillow-rent-index-methodology-2393/ BUILDING PERMITS The region s office market remained at the lowest region-wide vacancy rate in seven years at 15.9 percent in Q2 2015. According to DTZ s (now Cushman & Wakefield) Office Market Snapshot, the low vacancy rate was driven primarily by leasing activity in the South County sub-region. North and Central County sub-regions experienced slight up-ticks in the vacancy rate, but overall, the San Diego region s office market remained steady. Residential rental rates grew at a modest 5.4 percent from the previous year, the 8th highest among peer metros. Residential Building Permits: San Diego County TOTAL NUMBER OF BUILDINGS TOTAL NUMBER OF UNITS TOTAL CONSTRUCTION COST BUILDING SIZE OCT-15 CHANGE QTR CHANGE YR OCT-15 CHANGE QTR CHANGE YR OCT-15 CHANGE QTR CHANGE YR Total 173-126 22 173-126 22 $66,659,100 -$33,815,000 $20,295,900 Single Family 19 2 14 58 8 42 $12,733,600 $4,789,400 $10,175,300 2-4 Family 18 9 13 631 474 511 $85,034,000 $52,224,100 $61,207,900 Multi-family (5+) 210-115 49 862 356 575 $164,426,700 $23,198,400 $91,679,100 Source: US Census Bureau Building Permits Survey Note: Monthly New Privately-Owned Residential Building Permits. Imputed figures used. Construction figures rounded to nearest 00.
COMMERCIAL REAL ESTATE PROVIDED BY PAGE 5 OFFICE San Diego s office market continued to show many positive signs in Q3 2015. One of the more impressive trends during the quarter was the $1 billion-plus in total Office sales; the highest volume of sales since Q3 2007. The Q3 2015 year-to-date sales volume exceeded $2.3 billion and already surpassed the 2014 total by nearly $300 million. Alexandria s purchase of Qualcomm s building at 10290 Campus Point in UTC for $105 million was the quarter s largest singlebuilding purchase. Although the total square footage under construction for office properties decreased in Q3 2015, the market still experienced the largest amount of square footage delivered since 2007. In Q3 2015, the office market saw three deliveries: the 320,000-sq.-ft. Sempra Energy headquarters in Downtown, the 306,000-sq.-ft. One La Jolla Center in UTC, and ViaSat s 77,400-sq.-ft. build-to-suit building in Carlsbad. The market was also witness to three new projects breaking ground. The new construction of Class A buildings consists of an additional 65,700-sq.-ft. build-to-suit for ViaSat in Carlsbad and a new 92,018-sq.-ft project in Del Mar Heights named Torrey Point. Torrey Point is comprised of two Class A buildings with Pacific Ocean and Torrey Reserve views. The industrial real estate market remained hot, with vacancy rates reaching record lows in Q3 2015. INDUSTRIAL The surge of positivity surrounding the San Diego industrial market did not give way in Q3 2015, as it posted the highest positive net absorption since Q3 2006. Vacancy dropped for the thirteenth consecutive quarter to a more than 10-year record low of 4.4 percent. Net absorption has kept up its pace every quarter in 2015; with Q3 2015 s impressive 1,254,926 sq. ft. of positive net absorption, year-to-date net absorption has been brought to 3,235,297 sq. ft. Every San Diego region posted positive net absorption in Q3 2015. Central San Diego led Q3 2015 with 581,045 sq. ft., but North County led year-to-date figures with over 1.2 million sq. ft. Due to the recent surge in demand for the development of new Industrial buildings, construction activity increased significantly during the third quarter of 2015. In Q3 2015, Techbilt Companies delivered two speculative warehouses in Poway Corporate Center totaling 70,560 sq. ft. Both of these buildings were delivered 100 percent pre-leased by Best Buy and Grace Digital. These positive indicators have fueled more industrial construction; in Q3 2015 Siempre Viva Business Park broke ground on Building 18, a speculative 121,970-sq.- ft. Warehouse in Otay Mesa. Additionally, ground was broken on two new build-to-suits in Oceanside; Coca-Cola broke ground on a new distribution Warehouse totaling 193,800 sq. ft. and Magnaflow broke ground on a 91,974-sq.-ft. light industrial building. San Diego Historical Office Stats - Vacancy & Asking Rate 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 12% 10% 8% 6% 4% 2% 0% 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4F1F2F3F4F1F2F3F4F 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Vacancy Asking Rate San Diego Historical Industrial Stats - Vacancy & Asking Rate Forecast 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4F1F2F3F4F1F2F3F4F 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Vacancy Asking Rate San Diego Historical Stats - Under Construction 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Source: CBRE Research; Forecast by CBRE Econometric Advisors Source: CBRE Research; Forecast by CBRE Econometric Advisors Source: CBRE Research Forecast 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2008 2009 2010 2011 2012 2013 2014 2015 Industrial Office $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00
VENTURE CAPITAL In Q3 2015, the San Diego region ranked 8th out of the 18 U.S. regions tracked by the PricewaterhouseCoopers MoneyTree Report in terms of VC dollars received by regional companies. Total VC dollars was up substantially relative to national trends and the region s performance over the past several quarters. San Diego received the most VC dollars since Q1 2008, with more than $435 million from 33 deals. Data from Q3 puts San Diego clearly on pace to reach $1 billion in 2015. The region has received more than $832 million in funding through three quarters, more than half of which came from Q3. When you take the previous four quarter total, the region has received nearly $1 billion. In Q3 2015, San Diego received the most VC dollars since Q1 2008 more than $435 million from 33 deals. PAGE 6 San Diego Venture Capital Funding by Industry (Q3 2014 - Q3 2015) INDUSTRY Q3 2015 Q3 2014 Prev. 4Q Total Biotechnology $196,424,700 $145,433,200 $458,052,400 Consumer Products and Services $164,400,000 $7,500,000 $185,522,000 Electronics/Instrumentation $0 $2,000,000 $4,720,000 Financial Services $10,000,000 $0 $18,300,000 Healthcare Services $0 $0 $3,956,000 Industrial/Energy $0 $800,000 $5,276,000 IT Services $0 $4,096,000 $2,200,200 Media and Entertainment $4,093,000 $900,000 $14,909,800 Medical Devices and Equipment $1,768,000 $23,437,000 $12,482,000 Semiconductors $0 $9,999,900 $4,286,100 Software $40,782,900 $26,135,000 $227,936,900 Other $18,500,000 $0 $18,500,000 Total $435,968,600 $220,301,100 $956,141,400 Source: PricewaterhouseCoopers MoneyTree Report Note: Only industries with funding in San Diego shown Prev. 4Q Total reflects total from Q4 2014 - Q3 2015 Q3 reached reached this seven-year high on 33 deals accross three big sectors. Biotech firms recorded 12 deals in the quarter, which resulted in more than $196 million in investment or just under half of the total investment received in the region. Another 38 percent of investment came on two large consumer products and services deals that resulted in roughly $164 million in new investment. Software continued to trend positively, after recording the largest quarter since 2007 in Q1 2015. In the previous four quarters, the software industry has attracted more than a quarter million dollars of investment. La Jolla-based firm Global Analytics accounted for $10 million of the $40.7 million received in Q3. After relatively slow years in 2013 and 2014, the region appears poised to close out 2015 in near record fashion a very positive sign for the region s tech and life science sectors. While biotech is still the main driver of investment, other industries are making up a larger share of investment than in recent history, with a renewed interest in seed stage companies in 2015. San Diego Venture Capital Funding by Stage (Q3 2014 - Q3 2015) STAGE Q3 2015 Q3 2014 Prev. 4Q Total Seed $52,630,000 $3,910,000 $110,837,000 Early Stage $63,483,800 $88,401,900 $212,833,900 Expansion $199,940,100 $44,231,100 $294,192,100 Later Stage $119,914,700 $83,758,000 $334,683,400 Total $435,968,600 $435,968,600 $956,141,400 Source: PricewaterhouseCoopers MoneyTree Report Note: Only stages with funding in San Diego shown Prev. 4Q Total reflects total from Q4 2014 - Q3 2015 The Quarterly Snapshot series is brought to you by With research support from For more information, please contact: info@sandiegobusiness.org 619-234-8484 sandiegobusiness.org San Diego Regional EDC s mission is to maximize the region s economic prosperity and global competitiveness.