High commercial rents, low vacancy strengthen, challenge Encinitas economy

ENCINITAS — As part of its strategic plan, the city of Encinitas promotes and monitors economic development as a way of attracting and retaining businesses as well as generating revenue and job opportunities.

Assistant City Manager Mark Delin provided City Council with an economic development update at the Dec. 12 meeting. He shared that in the fiscal year 2017-2018, 18 percent of the general fund’s revenue came from sales tax, the equivalent of $13.25 million.

Businesses yielding the highest amount of sales tax per square foot in Encinitas fell into the categories of fine dining and casual dining.

While that trend has boded well for restaurants seeking to open and operate in the city, it has also created an economic model downtown that lacks business diversity, according to City Councilman Tony Kranz.

Kranz told the council, “The reality is that we probably need to look at our downtown specific plan for the ability to have an effect on what types of businesses locate in downtown.”

He pointed to the pressures, such as high rent, on brick-and-mortar retail shops that have made it difficult for those stores to survive.

Given that landlords know that restaurants in Encinitas can generally pay a higher rate of rent than retail, Kranz said, “It’s kind of a vicious cycle. The rent goes up. Retail goes out. Restaurants come in. And we end up with nothing but restaurants” in the downtown area.

Kranz advocated for reviewing the downtown specific plan to come up with ways to attract a diverse pool of businesses. He said about 15 years ago the council limited the types of businesses that could operate on the first floor in the downtown area in order to prevent, for instance, having too many law offices along the corridor. Similar approaches could be useful now, he stated.

While high commercial rental rates and low vacancy can indicate economic health, they also point to the fact that Encinitas is “built out,” as Delin put it.

There are few opportunities for adding square footage in the city for commercial enterprises.

“So when new businesses come in,” Delin explained, “they come in at the expense of vacancies.”

Encinitas had a 6.1 percent vacancy rate on its commercial office space in the third quarter of 2018, with average rents of $3.27 per square foot.

Carlsbad, which recently created a significant amount of new commercial space, had an 18.5 percent vacancy rate during the same time period, with average rents of $2.54 per square foot.

According to Delin, the lack of commercial space coupled with high rental costs have led to a proliferation of home-based businesses in Encinitas. He reported that at city-sponsored business workshops, sometimes about half of the attendees are people launching businesses from their homes.

The workshops, an online business portal with tools and resources, and recruitment of new businesses to existing vacancies are all ways that the city attempts to foster a business-friendly environment.

Given that tourism plays a major role in the Encinitas economy, beautifying the physical environment and simplifying transportation across it are also high priorities.

Delin pointed to the Leucadia Streetscape project, artful way-finding signs and the Verdi rail under crossing as future city improvements expected to enhance visitors’ and residents’ experiences.

Promoting walkability and bike ability is another city goal expected to spur economic development by making movement through Encinitas easier and more enjoyable.

The city also funds and partners with the Encinitas Chamber of Commerce and the various 101 Main Street Associations for Cardiff, Encinitas and Leucadia. Delin’s staff report refers to those organizations as “the backbone of the City’s economic development effort.”

When businesses contact City Hall looking for space to rent, Delin said staff directs them to the Main StreetAssociations for guidance.

Each association performs business outreach and provides informational programs. They also coordinate public projects with the city and maintain an administrative presence.

In addition, the chamber runs a visitor center, provides ribbon-cutting ceremonies for new businesses and hosts the annual State of the City Address.

Looking to the future, Councilman Joe Mosca said “it’s high time” that the city creates a specific plan for New Encinitas, while Kranz expressed a desire to establish a city arts district and maybe an agricultural one.