County’s economy expected to rise as developments continue

County’s economy expected to rise as developments continue
Current developments underway in North County are expected to add jobs, goods and services and additional tax revenues to city coffers. Photo by Steve Puterski

REGION — As the boom of commercial and industrial developments continues, the economic haul is also expected to rise.

Building permits, tax revenue, business licenses and other factors will add more money to city coffers. Developers are in the midst of adding more than 1.5 million-square feet of space to North County.

There are a number of major projects throughout the region including six in Carlsbad and three in Escondido.

The financials, though, are difficult to forecast, as much of the space is not yet ready for tenants.

Still, Tucker Hohenstein, executive vice president San Diego Region of Colliers International and member of the San Diego North Economic Development Council, said the increase in activity is a welcome sign for the region’s economy.

“There are a variety of benefits from delivery of new industrial buildings in the North County market,” Hohenstein said.

Those include nearly a dozen fees associated with construction.

In addition, fees from developers help offset the cost of cities’ building departments.

“Up and down the food chain, there is a lot of short-term development,” Hohenstein said. “The fee component of the development is often overlooked as an economic benefit and often a strong benefit. There are probably over a dozen fees associated with a new project.”

As for long-term benefits, all of those goods and services that flow into and out of an industrial building are valuable, Hohenstein noted. “The reason industrial jobs are so important to the community is they are long-term providers of goods and services. The higher the wage paying jobs, the better.”

“The No. 1 thing cities focus on is recruiting employers to build industrial manufacturing plants,” Hohenstein said. “It’s an economic benefit to the city. Those cities aren’t as economically prosperous as cities that have those.”

Carlsbad’s place

In Carlsbad, Christie Marcella, the city’s economic development manager, said the uptick in commercial buildings is a sign the market has recognized growth opportunities in Carlsbad and North County.

Although Carlsbad has the highest vacancy rate among the five cities — Escondido, Oceanside, Vista and San Marcos — in North County, the number has dropped steadily over the past five years.

In fact, Carlsbad ended the third quarter of 2016 with a 6.9 percent vacancy rate, according to Chris Reutz, a research director for Colliers International.

Marcella, though, reported the city’s vacancy rates are 2.5 percent in retail, 8.3 percent in industrial and 18.2 percent for office.

“The vacancy rates have steadily been declining over the past five years,” she said “This shows confidence in our commercial real estate market and provides opportunities for growth of existing businesses and the establishment of new businesses here in Carlsbad. While we won’t have concrete numbers on the impact of this development activity until tenants are in place, we do expect to see dollars come from business licenses, TOT (Transient Occupancy Tax) revenue and property tax.”

Although Carlsbad sits No. 1 in vacancy rates, the city is undergoing numerous new projects to increase its high-end manufacturing, research and development and warehousing sectors.

Reutz’s report said Carlsbad is the fastest growing submarket in San Diego County since the end of the recession.

Also, Carlsbad average rent for industrial space is $1.08 per square foot, which is 1.9 percent higher than the third quarter of 2015. Reutz also noted the 390,204-square feet of space under construction is 22 percent of the total space being built in the county, and among submarkets not counting research and development Carlsbad is No. 1.

“Many of these developments also include infrastructure improvements to the city’s streets and sidewalks, maintaining the city’s standards when new development is in place,” Marcella said. “The new buildings provide flexibility to businesses, offering more opportunities to find the space that best suits their company’s needs. As the portfolio of North County expands, a city is better able to help a broader population of businesses, from those starting out and needing a small space, to larger corporations looking to grow or move here for our quality of life and highly educated talent pool.

Escondido

In North County’s second largest city, meanwhile, space is limited and difficult to rent, according to Economic Development Manager Michelle Geller.

Like Marcella and Hohenstein, Geller said there is no way to determine the actual financial impacts of current projects until tenants move in.

Still, the city landed its two largest projects in 10 years when La Jolla-based Badiee Development was approved for two large projects.

“Obviously, jobs will be created and that will be the biggest impact to us,” Geller said. “We are pretty heavy in retail. So when new developments that are geared more toward high-end manufacturing, it diversifies our job base.”

Although the city will miss out on sales tax from those industries, the trickle down effects are positive. Companies still must pay property taxes, water, but is a smaller slice.

More jobs, higher paying employment increases spending and thus adds to sales tax revenues.

“Sales tax will be generated in the supply chain,” Geller added. “These employees are obviously getting gas, going out to lunch and getting these sorts of things. So that helps too.”

Still, Escondido has the third-lowest vacancy rate for industrial at 2.8 percent, although it did increase by 0.4 percent over the second quarter of 2016.

Rents, meanwhile, average $0.92 per square foot, which is second highest in North County behind Carlsbad, according to Reutz’s report, although rates did increase 12.2 percent from third quarter 2015.

As for the new developments, Geller stressed the importance of those additions to the city.

“It is very needed,” she added. “We have companies … that unfortunately that had to leave Escondido because we didn’t have space for them to grow in to. Having nice, big industrial spaces will help us retain these businesses as they grow.

The rest of North County 

As a whole, North County offers 52.7 million-square feet of industrial space with a 3.75 vacancy rate, which includes research and development facilities.

Rental rates are going up faster in North County than anywhere else in San Diego County, according to Reutz. The average rate is $0.89, which is 3.5 percent higher than last year, while the county average increased by just one percent.

Construction is “robust” as 415,970-square feet of space were completed in the first nine months of 2016. Another 605,363-square feet is currently under construction.

Expansion is underway with Coca-Cola adding 193,800-square feet in Oceanside, a 21,359-square foot addition in Vista and three projects in Carlsbad.

San Marcos, meanwhile, has the second highest vacancy rate at 4.55 percent, while Vista is the lowest at 1.7 percent followed by Oceanside at 1.96 percent.

More than $100 million in sales of current buildings transpired in the first three quarters of 2106, Reutz reported.

Correction: An earlier version incorrectly stated rents in Escondido were $0.02 per square foot and the largest city in North County.

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