Tag: Economic Intelligence

Q4 2023: San Diego’s employment and what it means post-pandemic

By Sofia Nelson-Ferezi,

Each quarter, EDC’s Research Bureau releases its Economic Snapshot to analyze key economic indicators in San Diego’s economy. Read on as we dig deeper to assess the region’s job recovery journey in a post-pandemic economy by looking at economic trends through the end of 2023.

San Diego’s job recovery journey

As San Diego’s unemployment rate has remained up and above the national average, at 4.3 percent and 3.5 percent respectively, and as job growth has slowed compared to early 2023, it is worth examining the region’s progress recovery in a post-pandemic economy.

From March to April 2020, San Diego lost 233,900 jobs, and employment dropped by 18.5 percent causing the unemployment rate to spike to 15.7 percent. In November 2021, the region officially recovered the total number of jobs lost during the pandemic. While recovering lost jobs is an indicator of a healthy economy, it does not tell the whole story. The following explores San Diego’s employment data to understand where the region stands as of the end of 2023.

Not all industries are created equal

While San Diego has regained the total amount of lost jobs, this is not the case for each industry. Total employment in San Diego stands two percent higher than at the onset of the pandemic. However, more than half of industries in San Diego don’t currently match pre-pandemic employment levels. Top growing industries such as Utilities, Transportation, and Healthcare help offset other sectors that are lagging in job growth.

Comparing current employment levels relative to pre-pandemic numbers is not always a reflection of recovery. Such is the case for Finance and Insurance, which made up for pandemic-related job losses by December 2020, but currently sits at 5,300 jobs under original pre-pandemic levels. In fact, several other industries initially recovered pandemic job losses and now find themselves with lower total employment. This includes Retail Trade, Real Estate, Accommodation and Food Services, and Management of Companies.

While it is hard to assume this negative trend is related to pandemic effects, the new conditions it spurred can potentially have a lagging impact on employment across sectors. For example, as remote work trends have become more prevalent, commercial real estate is affected as firms continue to reduce their office footprint, which could potentially lead to a lower demand for commercial real estate talent. In 2019, remote job postings made up only eight and four percent of total job postings in Finance and Information, respectively. In 2023, those proportions grew to 26 and 15 percent.

The industries that recovered the fastest are Transportation and Warehousing in November 2020, followed by Finance and Insurance in December 2020, and Professional, Scientific, and Technical Services in March 2021. Employment in the Utilities industry was hardly impacted after March 2020, which might explain why it has added the most jobs since the pandemic started.

What if the pandemic didn’t impact jobs?

While jobs have been recovered, the pandemic has also impacted the job growth that would have occurred absent the pandemic. Before the COVID hit, San Diego’s annual employment growth rate was averaging at 1.1 percent. This typical annual growth rate was disrupted in 2020, as annual employment fell by 10 percent.

To get an idea of where employment would stand today if jobs had not declined amid the pandemic, we apply the average growth rate from 2019 to 2023. Below, we can see how this potential growth compares to the actual annual employment levels in San Diego. From this, we see that the region is still 1,488 jobs below the potential growth, assuming employment has been growing at a fixed annual rate of 1.1 percent. This recovery had a significant economic impact on the region beyond number of jobs. In 2020, the annual growth of San Diego’s gross regional product (GRP) was barely 0.1 percent, while the annual GRP growth rate in 2021 and 2022 was 10 percent.

San Diego relative to California

While San Diego has not fully closed this gap between actual employment and potential employment growth, it is ahead of the state. This aligns with the fact that San Diego’s unemployment rate has remained below California’s throughout the pandemic until now. Additionally, the region was able to reach pre-pandemic labor force levels back in 2022, while the state remains 1.57 percentage points below 2019 participation.

Where does San Diego stand?

While San Diego’s recovery from pandemic employment impacts is not over yet, it is very close to completion at a macro level. However, it is important to monitor individual industries as their employment trends differ from one another. Even after San Diego is aligned with its potential growth, there will likely be industries falling behind; some might even experience new disruptions due to emerging economic conditions in a post-pandemic economic climate.

When comparing to California, the region has held a stronger position and experienced an overall faster recovery, with lower unemployment rates, faster labor force growth, and more rapid return to potential growth.

Learn more in our Quarterly Economic Snapshot

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San Diego’s Economic Snapshot: Q4 2023

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S. Thank you to our sponsor Verizon Wireless.

EDC explains San Diego’s Q4 2023 economic data:

 

Key findings from Q4 2023:

  1. COMMERCIAL REAL ESTATE: Office and industrial real estate utilization fall for sixth straight quarter. In Q4, the region experienced sharp increases in negative net absorption of 441,867 sq. ft. in office space and 525,516 sq. ft. in industrial space. These declines mark the sixth consecutive quarter of negative net absorption. The office market ended 2023 with an additional 1.5 million sq. ft. of unoccupied space, bringing the total amount of vacant office space to more than 10.5 million sq. ft. In response, construction activity has generally declined in both office and industrial, most especially office where we see high interest rates and remote work trends continue post-pandemic.
  2. HOUSING PERMITS: In 2023, the number of housing construction permits reached its highest level since 2005. In Q4 alone, 3,500 housing construction permits were issued in San Diego, totaling 11,468 permits for 2023 and beating the average 8,635 permits granted annually since 2004. This was driven primarily by permits for five or more units, at almost 8,000 permits, while permits for one to four units decreased compared to 2022. Despite an increase in permitting activity, affordability remains woefully low. In fact, only one in nine households in San Diego can now afford the median home price, which reached $931,600 in Q4.
  3. VENTURE CAPITAL: More deals and more dollars in Q4. VC funding in Q4 was split almost equally between San Diego tech and life sciences companies, at $526 million and $570 million respectively, while the consumer companies raised $9 million. This brought the region’s total in Q4 to $1.1 billion, $134 million more than Q3. Making up more than half of Q4’s tech funding, Shield AI secured the region’s largest deal to buildout its AI pilot for autonomous aircraft systems. Overall, San Diego saw a total of $3.9 billion in funding across 182 deals in 2023, $1.9 million short from 2022, but ranking fifth in total VC funding among all U.S. metros.

Check out our most recent Economic Snapshot below

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Q3 2023: San Diego’s remote work policy and the impact on commercial real estate

By Sofia Nelson-Ferezi,

Each quarter, EDC’s Research Bureau releases its Economic Snapshot to analyze key economic indicators in San Diego’s economy. Read on as we take a closer look at how remote work trends are reshaping the workplace and the broader economy.

Remote first work

As the cost of living in San Diego continues to outpace compensation, remote work flexibility has emerged as a valuable incentive for job seekers—often, the most valuable. With San Diego median home prices reaching an all-time high of $1 million in Q3, working remotely opens affordable housing markets to employees without being limited by geographic constraints. Meanwhile, this allows employers to hire out-of-county or even out-of-state, increasing the pool of talent available to them.

Even still, employers grapple with concerns about the potential impact on employee productivity, leading to a spectrum of opinions on the efficacy of remote schedules. Yet, cutting overhead costs by adopting fully remote schedules has become an attractive possibility for firms.

SANDAG’s recent report on Remote Work Policies and Practices shows how the percentage of businesses that offer remote work options to their employees jumped from 27 percent pre-pandemic to 47 percent during, and 57 percent post-pandemic. This has had an obvious and indelible impact on commercial real estate demand.

What this means for real estate now

In the Q3 2023 Economic Snapshot, we saw that San Diego office real estate experienced its fifth consecutive quarter of negative net absorption, which reflects the difference between space that became physically occupied and space that became vacant. When this number is negative, it means more space became vacant than occupied during the quarter, perhaps because tenants decided not to renew leases as they became due.

San Diego’s negative net absorption trend is noteworthy for two reasons:

  1. Despite net absorption remaining negative for five quarters, asking rates remained at an all-time high throughout, reaching $3.31 per square foot in Q3 2023. Typically, asking rates would be expected to decrease in response to a slower demand for office space.
  1. Since 2010, the only other time the region has experienced five consecutive quarters of negative net absorption was during the onset of the pandemic, from Q1 2020 to Q1 2021.

Find this and other data trends in our interactive dashboard.

We know that office spaces became unoccupied during the pandemic due to public health mandates and safety protocols. But why are we seeing this trend again and what could be causing it? The answer could be observed in the previous graph, leading firms to cut office space.

While net absorption remained negative in Q3 2023, the number recovered greatly and indicated potential recovery from past quarters. In Q3, the office market experienced 37,868 square feet of negative net absorption, compared to 159,262 square feet in Q2 and 874,036 in Q1.

The negative net absorption in Q3 was primarily driven by larger office vacancies in areas such as UTC, Kearny Mesa, and Del Mar Heights, according to CBRE’s quarterly report. Similarly, the highest asking rates in Q3 were found in UTC, Torrey Pines, and Del Mar Heights. The low tenant demand and the continuing construction of office spaces combined might generate more available, yet unoccupied space.

Looking ahead and how you can get involved

As the San Diego region anticipates continued changes in commercial real estate, EDC is scoping a unique study of the local workforce in which we’ll survey the employees of large and small companies throughout the county. The first local study of scale on workforce requirements and desires (to our knowledge), our goal is to identify evolving local trends in how work is done, workers’ needs, workforce trends, and workplace requirements to inform company return to office plans as well as office tenant attraction strategies.

Updated survey work and studies combined with tools such as EDC’s Investment Map can help private and public investors better understand workforce and workplace trends when making commercial real estate development decisions that benefit both employers and workers. To get involved, contact EDC’s Senior Director of Research and Economic Development:

Eduardo Velasquez
Eduardo Velasquez

Sr. Director, Research & Economic Development

 

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San Diego’s Economic Snapshot: Q3 2023

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S. Thank you to our sponsor Verizon Wireless

EDC explains San Diego’s Q3 2023 economic data:

 

Key findings from Q3 2023:

  1. TALENT: Job growth continues as job postings slow down. In Q3, employment grew 1.9 percent compared to a year ago, in line with the state but behind San Diego’s most peer metros. The labor force has recovered from Q2 losses, adding nearly 13,000 participants this quarter and up 2.8 percent from last year. In contrast, the number of unique job postings advertised by regional employers totaled 106,521 in Q3, a 32 percent decrease compared to this quarter last year.
  2. AFFORDABILITY: Median home price reached an all-time high. San Diego’s median home price ranks second among peer metros, behind only San Francisco. Home prices increased an additional eight percent during the last year, while home sales fell 25 percent. Year-over-year home sales have declined since August 2021. The lack of housing supply and the reduced number of transactions has resulted in record lack of affordability.
  3. COMMERCIAL REAL ESTATE: Office space occupancy declines for fifth consecutive quarter. In other words, more office space has become unoccupied than leased for over a year. However, net absorption is currently trending in the right direction. In Q3, the office market experienced 37,868 square feet of negative absorption, compared to 159,262 square feet in Q2 and 874,036 in Q1. The only other time San Diego experienced this degree of negative net absorption was during the height of the COVID-19 pandemic.

Check out our most recent Economic Snapshot below

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Q2: San Diego’s new unemployment numbers and what they mean.

By Sofia Nelson-Ferezi,

Each quarter, EDC’s Research Bureau releases its Economic Snapshot to analyze key economic indicators in San Diego’s economy. Read on as we dig deeper to assess the region’s labor force, unemployment, and talent supply.

As 2022 came to a close, San Diego celebrated a relatively low unemployment rate at three percent. However, across just a few months, the region saw a slight bump up to four percent in the second quarter of 2023. What does this increase signify, and why is it essential to comprehend the broader employment landscape in San Diego?

Understanding San Diego’s labor force involves more than just examining unemployment rates. It requires considering historical context, peer metro comparisons, labor force dynamics, seasonal trends, and the complex factors shaping employment and workforce trends.

San Diego’s unemployment rate has hovered between 2.9 percent and four percent over the past five years, with the exception of the pandemic-induced peak of 13.6 percent. Since then, San Diego’s unemployment rate has been steadily declining until its first increase in Q1 2023.

With this context in mind, here are some different ways we approach the data.

HOW SAN DIEGO STACKS UP

To gain a comprehensive understanding of local employment, we compare San Diego’s numbers with its peer metros and the nation. In the first two quarters of the year, the U.S. and our peer metros saw an increase in unemployment rates after continuously declining throughout 2022. See how San Diego stacks up in our interactive dashboard, where you will notice similar trend lines in most comparisons. Still, the region ranked amongst the highest increases in this national trend, following Riverside, St. Louis, and San Francisco.

‘TIS THE SEASON

Employment in specific industry sectors can fluctuate due to seasonal factors. For instance, in Q2 2023, tourism and hospitality experienced an expected seasonal spike of 7,100 jobs as San Diego prepares to receive tourists in the spring. To account for these fluctuations, analysts often examine the percentage change from the previous year. In Q2 2023, there was a three percent growth in employment compared to the previous year, slightly exceeding the typical annual employment growth rate (ranging between 1.2 and 2.5 percent) and indicating anticipated recovery from the pandemic.

BREAKING DOWN THE LABOR FORCE

One crucial aspect to consider when analyzing rising unemployment rates is the overall labor force composition. Sometimes, an increasing unemployment rate can be attributed to a growing labor force as individuals re-enter or join the workforce. This usually results in temporarily higher unemployment rates, as these individuals search for employment and the hiring process takes time. However, for Q2 2023, this was not the case. Data indicates a decline in the total labor force while the number of unemployed has risen. This phenomenon contributed to the increase in the unemployment rate during the first half of 2023. To put this into perspective, Q2 2023 saw a labor force decline of 25,889 since the last quarter. In contrast to the year before, the labor force declined by 8,966 in Q2 2022. While historical data indicate that labor force declines at the beginning of Q2 are typical, this year’s Q2 decrease marked the highest in the past five years, even exceeding Q2 2020 when employment was first affected by the pandemic.

WHY THE CHANGE?

Here are some factors that can collectively help explain San Diego’s labor force fluctuations:

Remote work trends. The widespread adoption of remote work during the pandemic has led to a preference for flexibility and convenience. As a result, workers may seek remote-only or hybrid work arrangements, potentially contributing to the “great resignation” phenomenon. This trend also has implications for the use—or lack thereof—of office space and commercial real estate. Office asking rates have remained high after the pandemic spike ($3.26 per square foot), while rates for industrial space have been more stable.

Rising cost of living. While San Diego is home to top universities producing talent in key economic sectors such as innovation, the increasing cost of living may drive workers away from the region. EDC’s Inclusive Growth framework highlights the disconnection between the unaffordable housing market and compensation. Competitive wages are a must to keep our locally produced talent in the region.

Limited talent supply. There are more open positions in San Diego than unemployed people available to fill them—on par with the national trend. Employers are responding to talent supply challenges by prioritizing inclusive talent recruitment. Job opportunities are opened to a new subset of the unemployed population, expanding the talent pool for employers. To do this, there have been employer-driven efforts to reevaluate training requirements and accessibility, as well as amplified focus on opportunity populations. On the educators side, efforts are being made to leverage the bi-national comparative advantage to fill high-demand positions with talent produced in the Baja region by collaborating with universities across the border. UC San Diego’s ENLACE summer research program invites high school and university students from the Baja region to participate in research programs at UC San Diego.

While the unemployment rate itself is not always sufficient to indicate concern, historical economic context and analysis helps us gather the following takeaways:

  • High-level unemployment numbers for Q2 2023 are in alignment with historical and national trends, as most peer metros experienced similar increases. In other words, San Diego is not experiencing any unusual trend activity.
  • However, labor force composition trends should command our attention in upcoming quarters, being that Q2’s labor force number decreased significantly compared to the past five years.
  • Total labor force and unemployment numbers are particularly important to track given the region’s talent supply. Lower unemployment rates can generally indicate a limited talent pool; however, this quarter’s unemployment rate increase was mostly due to people exiting the labor force, not people joining and looking for jobs.

Explore the data in our Economic Snapshot.

San Diego’s Economic Snapshot: Q2 2023

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S.

EDC explains San Diego’s Q2 2023 economic data:

Key findings from Q2 2023:

  1. Unemployment grows as people exit the labor force. Unemployment in San Diego began to rise at the turn of the new year, reaching four percent in Q2 2023. On par with the national rate, most peer metros also saw unemployment rates rise in Q2. In San Diego, the labor market has softened as the number of unemployed people increased by 3,751 while the labor force declined by 25,889 since last quarter. In contrast to Q2 2022, the labor force declined by 8,966 and unemployment decreased by 3,316.
  2. VC resumes pre-pandemic upward trend. San Diego’s total Q2 VC exceeded last quarter but lags compared to Q2 2022. The largest recipient of VC this quarter was Avenzo Therapeutics at $196 million; the company is building a pipeline in preclinical or early clinical antibody-drug conjugates, bispecifics, and small molecules. This deal marks the 18th largest VC investment secured in San Diego since 2019. The region closed a total of 227 VC deals in 2022, compared to 96 deals in the first half of 2023.
  3. Office space asking rates grow while industrial asking rates decline. Office asking rates reached an all-time high of $3.26 per square foot, even as vacancy rates continued to increase over the past four quarters to 14 percent. On the other hand, industrial real estate has responded to a 0.5 percent increase in vacancy rate by offering lower asking prices of $1.66 per square foot. These more stabilized rates may be in part because industrial work requires employees be in-person, unchallenged by remote work trends.

Check out our most recent Economic Snapshot below

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San Diego’s Economic Snapshot: Q1 2023

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S.

EDC explains San Diego’s Q1 2023 economic data:

Key findings from Q1 2023:

  1. OFFICE SPACE: Firms look to cut costs as remote work remains popular. In Q1, office space experienced a huge decline in net absorption, meaning more offices became vacant than occupied. The last time San Diego experienced this level of negative net absorption was in Q4 2020, during the height of the pandemic. Downtown (92101) continues to experience rising vacancy rates since 2020. With asking rates at an all-time high of $3.25 per sq. ft. and employees still interested in remote work, office tenants are reducing their footprint as leases come due.
  2. JOBS: San Diego leads employment growth in California. With 3.3 percent job growth compared to a year ago, San Diego outpaced California peers and stands amongst fast-growing metros in the country. San Diego adds 50,300 more jobs compared to Q1 2022. The strongest growth locally came from Government and Leisure and Hospitality, adding 3,000 and 2,600 jobs respectively. Meanwhile, Trade, Transportation and Utilities shed 7,000 jobs.
  3. HOUSING: Home prices cool from last year’s highs. San Diego’s median home price reached $915,000 in Q1, which experienced an expected seasonal increase. However, prices are down 3.7 percent compared to a year ago. The Housing Affordability Index (HAI) in San Diego has remained at 15 percent for the past three quarters, making San Diego one of the most unaffordable counties in California.

Check out our most recent Economic Snapshot below

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San Diego’s Economic Snapshot: Q4 2022

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S.

EDC explains San Diego’s Q4 2022 economic data:

Key findings from Q4 2022:

  1. EMPLOYMENT: San Diego wraps Q4 with unemployment below pre-pandemic levels, at 2.9 percent.Even with a decreasing unemployment rate, San Diego continues to face a talent shortage and struggles to fill jobs in top industries like Life Sciences and Tech. For instance, the Communication Technologies and Manufacturing employment sectors are 800 and 3,700 jobs away from pre-pandemic levels, respectively.
  2. HOUSING: Median home price continues to drop through Q4, reaching $850,000. However, San Diego still ranks second most expensive among the most populous metro areas. On the housing supply side, a total of 9,443 housing construction permits were granted in 2022, which has remained relatively unchanged for the past three years. The housing affordability crisis has driven employers to take on the challenge directly. UCSD purchased an apartment building in Downtown’s East Village to provide housing for in a location near the MTS Blue Line Trolley to connect both the La Jolla campus and Hillcrest Medical Center.
  3. COMMERCIAL REAL ESTATE: Vacancy grows in office and industrial space in Q4. Trends show a negative net absorption for both office and industrial space for the past two quarters, indicating a decline in demand for commercial real estate space. This could be happening because of the continuing shift towards remote work and the lack of affordable commercial space. In Q4, asking rent prices reached an all-time high of $3.23 per square foot, potentially turning remote work into a more attractive option for employers.

Check out our most recent Economic Snapshot below

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San Diego’s Economic Snapshot: Q3 2022

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S.

EDC explains San Diego’s Q3 2022 economic data:

Key findings from Q3 2022:

  1. EMPLOYMENT: San Diego has recovered pandemic-related job losses overall, but some industries still lag. Manufacturing employment remains 6,200 jobs below pre-pandemic level, yet growth in manufacturing jobs far outpaces that of California and the U.S. The region’s unemployment rate dropped 0.1 percent from last quarter to 3.1 percent. Persistent talent shortages have resulted in large sums of public funding for workforce training; as an example, the San Diego Workforce Partnership was recently granted $10 million for training in emergency and healthcare services.
  2. VENTURE CAPITAL: Funding into San Diego cooled off. The region pulled in $1.08 billion in VC funding in Q3, with half ($549 million) going to Life Sciences. The region’s Life Sciences firms lead in VC funding and increasingly turn to artificial intelligence and machine learning to accelerate scientific advancement. RayzeBio was the largest recipient with $160 million to advance cancer radiopharmaceuticals. On the technology side, Hone, a local startup that provides an online training platform with live instruction aimed at boosting worker retention, raised $29.3 million.
  3. COMMERCIAL REAL ESTATE: Q3 experienced higher vacancy and lease rates for both office and industrial space. Net absorption of industrial space was negative for the first time since the beginning of the pandemic. However, San Diego is also experiencing strong demand for industrial space—driving up asking rent prices as construction continues to slow. While office space also saw an increase in vacancies, asking rent prices reached a record high of $3.24 per square foot. Higher costs may be the deciding factor for companies considering adopting permanent remote or hybrid work arrangements that reduce their need for office space.

Check out our most recent Economic Snapshot below

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San Diego’s Economic Snapshot: Q2 2022

By EDC Research Bureau,

Every quarter, San Diego Regional EDC analyzes key economic indicators that are important to understanding the regional economy and the region’s standing relative to the 25 most populous metropolitan areas in the U.S.

Key findings from Q2 2022:

  1. VENTURE CAPITAL: VC picked up speed in Q2, nearly doubling Q1 totals. The most significant increase was in San Diego’s Life Sciences sector, which jumped from $627 million to $1 billion. La Jolla-based National Resilience’s $625 million raise for biomanufacturing medicines was the largest among all sectors in Q2. Tech companies drew $593 million while Consumer companies pulled $211 million in funding.
  2. HOUSING: San Diego housing is the second most expensive among major metros. However, the median home price remained unchanged compared to the end of last quarter, at $950,000. Q2 closed off with a total of 5,773 issued housing permits. 2021 totals reached 9,358 permits, which means 2022 permit activity is on track compared to previous years. However, issued permits might have to pass previous years totals in order to meet the housing demand in the San Diego region*.
  3. EMPLOYMENT: Unemployment in San Diego has dropped below the national rate, at 3.2 percent. San Diego unemployment continues to approximate pre-pandemic levels (3.0 percent) and has already dropped below national pre-pandemic levels (3.4 percent). More specifically, nonfarm employment increased by 17,700 during Q2, and by 79,700 compared to a year ago. Leisure and Hospitality employment continues to increase for the fifth consecutive month, and currently represents around 10 percent of the sector in California (EDD).

*Data correction: Please note that the initially published Key Takeaways from Q2 2022 erroneously stated the number of housing permits for 2021 and 2022 YTD. The written summary has been updated with the correct values.

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