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San Diego doesn’t have a whole lot of room for the very sectors it says it’s determined to grow – namely manufacturing, which tends to offer middle-class jobs.
A citywide economic development strategy approved in June zeroed in on one big roadblock: “San Diego is at a disadvantage in the manufacturing and innovation sectors in particular because the city is running out of raw land.”
San Diego County doesn’t have much land that can be quickly developed for industrial users. It’s boxed in by the Pacific Ocean, the Mexican border, Camp Pendleton and its unique topography.
A 2009 study by the San Diego Association of Governments, the region’s planning agency, found just 2,040 acres in the sprawling 4,526-square-mile county presented almost shovel-ready opportunities for commercial developers. More than 60 percent of the immediately available acreage was in unincorporated Otay, Carlsbad, Otay Mesa and Oceanside. Only a fraction of that land would be available to industrial users, though there are processes by which zoning can change.
The lack of space and the high cost of the supply in desirable central locations might have been a factor in some companies’ decisions to expand elsewhere but it’s not clear the shortage is hurting the businesses already here – yet.
That’s because manufacturing businesses and the jobs they supply are changing.
Most San Diego manufacturing companies aren’t working out of big factories or producing massive products. They’re in smaller labs, working on small contraptions or brewing beer, or in non-traditional facilities tinkering with a component that’ll go inside another product. They’re renting or settling in existing buildings in locations close to other companies they collaborate with.
Most manufacturing businesses here also aren’t big companies. A report released by the San Diego Workforce Partnership earlier this month concluded more than 80 percent of manufacturing firms in the region have fewer than 20 employees.
What Works Where
Regardless of size, companies’ demands vary considerably based on what they make. Some may never need or want to build their own space.
“Manufacturing is not generic,” said Linda Greenberg, a longtime San Diego real estate broker who specializes in industrial clients.
Take biotech companies, which tend to seek out facilities in Torrey Pines, University City or Carlsbad. They’re looking for the right mix of lab and office spaces, and a location that’ll appeal to their workers. They often modify buildings to get what they need, and are less likely to sink millions of dollars into a new one.
Other neighborhoods meet other manufacturers’ needs. There’s a growing cluster of brewers in Mira Mesa; technology manufacturers have settled in Sorrento Mesa. Far more are sprinkled across the city and county in spots that provide the space, zoning and technological specifications they require.
Densely populated areas tend to have lower industrial building vacancy rates and less available space.
And hefty costs discourage at least some San Diego manufacturers from trying to build their own spaces – that’s when the region’s dearth of green space becomes relevant.
Mickey Morera, an executive director for Cushman & Wakefield, said many manufacturing companies work out of multiple facilities because it’s cheaper than building a single new one.
Those decisions have at least partly contributed to a major slowdown in commercial construction. Real-estate information firm CoStar Group recently reported no industrial construction was under way in the San Diego region during the third quarter of this year.
That doesn’t mean some companies aren’t willing to invest in new buildings. There just aren’t many of them.
Those willing to go to Otay Mesa to build or settle often get a deal and more options.
The city hopes the southeastern neighborhood will eventually become one of the region’s manufacturing hubs, and encourages companies to consider locating there.
Burger producer Jensen Meats, a Costco packaging facility and tortilla and flatbread maker Circle Foods have moved to Otay Mesa in the last five years. Others are hesitant.
It’s too far from the mostly north and central San Diego-residing workers high-tech and biotech entrepreneurs want to attract, or the other businesses they work with. Some executives don’t want to be that close to the border.
“They go to Otay and they see the Mexican border and they have a perception about that place, which may or may not be valid,” said Greenberg, a former president of the Otay Mesa Chamber of Commerce. “If you came from New York and your only prior introduction to Otay was Anderson Cooper climbing through border tunnels used by drug smugglers, that is your impression of that submarket. I don’t know what we can do to change that.”
Wide Open Spaces
Even in areas where land does exist, the county doesn’t have lots of immediate real estate options for companies interested in large campuses, said Jo Marie Diamond, who leads the East County Economic Development Corp.
“Raw land that’s zoned industrial is very limited,” Diamond said.
And land that is available doesn’t always sell quickly.
A Lee & Associates search of industrial land for sale in the county turned up nine options that have been on the market for an average of about three years.
San Diego officials say they’re focused on what this all means long-term. They want to ensure homegrown companies have a place to expand here.
They’re not just focused on undeveloped industrial spaces but sites with existing infrastructure too.
“The point is that it’s not so much what is there right now but in 30 years, in 60 years, when a building is coming to the end of its useful life but what then replaces it. It will depend on where market is at the time,” said Deputy Chief Operating Officer David Graham, who oversees the economic development and city planning departments. “We want to make sure the areas for prime industrial, which includes manufacturing, are retained so that when those buildings come to the end of their life we’re replacing like to like to some extent.”
The city’s 2008 general plan discourages the city from converting land that’s now zoned for prime industrial uses – which means it can support manufacturing, warehouse and research and development companies – and allowing homes, schools or child-care facilities to pop up nearby without a buffer zone between the two. The general plan calls for the city to protect industrial lands from re-classifications, particularly when they offer middle-class jobs or support a base sector like manufacturing.
Real estate leaders have been critical of the city’s push to put a permanent label on such land. Some have argued that flexibility allows the city to respond to market needs and that San Diego businesses could be reined in by the designation, which also lowers property values.
San Diego’s changing manufacturing landscape is a crucial part of that argument.
Modern-day manufacturers aren’t necessarily tethered to the smoke stacks and large facilities often associated with their sector. Today, such companies tend to be smaller, more knowledge- and skills-based and in many cases, in need of far less square footage.
David Marino, executive vice president of commercial tenant representation company Hughes Marino, said smaller, high-tech manufacturers his company works with often find spaces in buildings not specifically dubbed prime industrial real estate.
Even a single floor of what a traditional office building or an incubator-style space can suffice, he said.
Mary Walshok, dean of UC San Diego Extension and co-author of a book about San Diego’s innovation economy, said efforts to revitalize empty warehouses and potential manufacturing spaces in East Village and other parts of the city could help address space concerns.
Most San Diego manufacturers aren’t going to produce on a grand scale in this region, she said.
“San Diego’s economic vitality is tied to its ability to continue to create new, innovative small companies that hire lots of people, who, when the moment comes to scale, get acquired or merge and all those talented people turn around and start the next new innovative company,” Walshok said.
This all means green space could be less of a concern than it might’ve been decades ago.
Graham said the city’s been supportive of efforts to revamp a five-block area in East Village known as Makers Quarter and may be willing to push zoning changes if the current ones trip up entrepreneurs looking to work there. A broader review of zoning and permitting requirements is already under way.
But city officials say ensuring manufacturers who may start in those smaller spaces have room to grow here is essential to retaining them over the long haul.
Not every business will see explosive success – but some will.
“We are focusing on manufacturing coming up with product or idea here, being able to make that in small run and then scale them to become (small and medium-sized enterprises) and then from there make sure have land so that when they are now a global company that has happened to churn out lots of product that they can do that here rather than having to leave for someplace else,” Graham said.
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, For a Business-Unfriendly State, California Offers Lots of Subsidies, and the next, Who Does What for San Diego’s Business Community.