A Tale of Two Local Economies

Economy

A Tale of Two Local Economies

San Diego’s economy is on the cusp of a massive shift: Tech companies are thriving while the hospitality sector remains in a deep depression because of the pandemic.

Illustration by Adriana Heldiz

San Diego’s economy is on the cusp of a massive shift. Biotech and pharmaceutical firms are poised to move into the massive waterfront site being built downtown, while Horton Plaza’s turning into a tech hub and UC San Diego Extension is moving in a few blocks away.

But at the same time, the tourism and hospitality industries — so often identified with San Diego’s brand through its hotels and the Convention Center — have collapsed during the COVID-19 pandemic. Tens of thousands of San Diegans have lost work and the homeless population has grown.

Despite the pandemic, San Diego’s tech startup scene has flourished and some firms have moved here from the Bay Area and Los Angeles.

“We certainly have been seeing an upward trend even before COVID, but it seems like it has accelerated a bit. We’ve seen a big growth of tech jobs in the area,” said Elizabeth Lyons, a UC San Diego economist.

The tech sector accounts for about 9 percent of jobs in San Diego, according to Cushman & Wakefield, a real estate services firm. Many, though not all, of those jobs are for tech work, including software engineers and data analytics workers, which earn higher-than-average salaries.

Venture capital in tech and the life sciences in San Diego has boomed at the same time, adding up to $4.6 billion for startups in 2020, up from $3.4 billion in 2019 and $2.8 billion the year before, according to Connect/San Diego Venture Group. Those numbers just account for startups; including IPOs makes it a whopping $6.1 billion in those industries over the past year. The growth in tech looks likely to continue through 2021 too, said Mike Krenn, Connect’s CEO.

The boom in tech is set to reshape San Diego’s landscape beyond its normal hubs in the northern parts of the city. That will be most dramatic with an 8-acre, $1.5-billion waterfront site along Harbor Drive, which has been named the San Diego Research and Development District, or RaDD. The land is owned by the Navy, which had leased it to San Diego developer Doug Manchester in exchange for him building the Navy a new San Diego headquarters. He sold his rights to develop the rest of the land to the IQHQ real estate investment group, which will build research labs, office and retail space focused on biotech, life sciences and pharmaceuticals. The first phase, which will involve at least 4,000 employees, is anticipated to be completed in summer 2023.

Combined with the Horton Plaza project and UC San Diego Extension, a transformation of downtown from a center of offices and condos and hotels to a hub for the tech and biotech industry is underway.

“We see these developments as creating vibrant, dynamic, transit-friendly, downtown campus environments to fuel positive change and growth in San Diego,” said Tracy A. Murphy, president of IQHQ, in a statement.

The Campus at Horton, which is scheduled to be completed next year, has similar goals.

“We are excited to be able to deliver a sustainable well-amenitized mixed-use life science and tech campus to address the unprecedented growth in demand,” said Dan Michaels, managing director of Stockdale Capital Partners, in a statement. Stockdale, the Los Angeles-based commercial real estate developer that owns the property, says that the complex will also include around 4,000 permanent jobs.

The UC San Diego Extension facility, which is being built at the corner of Park Avenue and Market Street, will fit with these projects too, including potentially educating some of their workers.

“It’s very much around being a resource to the region’s economy, helping support businesses and enterprises as well as education and training, so workforce development is a big piece of it,” said Mary Walshok, UC San Diego Extension Dean. The place will benefit from the Blue Line trolley extension later this year, linking downtown San Diego to the UCSD campus in La Jolla.

Other projects could be in the works, too. Near Petco Park, developers have their eyes on Tailgate Park, the parking lot nearby between 12th and 14th streets, which in a few years could be transformed into a commercial office hub of tech and biotech firms.

While tech and biotech’s growth downtown appears to be an ongoing trend, it remains to be seen how the hospitality and tourism sector fares. That sector will probably eventually recover, but it depends on how long the COVID-19 pandemic and related enforcement of lockdown measures to limit its spread remain. If it’s another year rather than just months, and if the vaccine rollout doesn’t proceed efficiently, then it will be a tough, costly recovery, Lyons said.

Comic-Con is always one of San Diego’s biggest events, often drawing more than 130,000 attendees as well as all the artists, media, speakers and exhibit hall presenters. But like everything else last year, they had to hold a more limited event online instead. It rolled over people’s badges and exhibit space until this year’s Comic-Con, but it’s possible that it will have to be a virtual event as well.

“We’d absolutely love to have an in-person show this year, but it’s up in the air,” said David Glanzer, a Comic-Con spokesman. “Until we have a better idea of the pandemic, until we’re given a go-ahead from health officials saying we can begin to start meeting en masse, we’re all just waiting with bated breath.”

He, like everyone else, hopes that by next year this will all be behind us. But he pointed out that if this year’s convention moves online again, organizers will not have as many resources to put together next year’s event.

Other big conferences and meetings might return to the usual in-person affairs later this year, but 2022 is more likely. The Society for Neuroscience, with about 30,000 attendees, is currently planning on returning to San Diego next year. TwitchCon, the streaming platform’s annual conference that often draws a similar number of people, was cancelled last fall and organizers have not yet committed to an in-person event this year.

If the pandemic continues through this year, it could mean trouble for many workers and businesses, even if stimulus checks are forthcoming. The county’s tourism sector had accounted for 13 percent of jobs in the area, according to the San Diego Tourism Authority, but many of those people have lost their jobs or been furloughed.

Workers in the tech sector typically enjoy six-figure salaries, some three times higher than the salaries of tourism and hospitality workers, on average. San Diegans benefit from a lower cost of living than the San Francisco Bay Area — the quintessential tech-dominated city — but home prices are rising rapidly with similar constraints on building and high demand.

The new tech-focused sites popping up will mean more people living downtown who can pay high prices for housing, though new apartments and housing units being constructed in the area will surely help.

Some workers ultimately may decide to try pivoting into new kinds of jobs and industries. For those people, they may find themselves looking for more training at the new UC San Diego Extension site.

“You have this large labor force that’s having to adapt, not just to COVID but to rapid changes in technology,” Walshok said.

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