San Diego’s Changing Business Landscape: Turning the pandemic corner

Welcome to the second edition in EDC’s Changing Business Landscape Series, which will be published bi-monthly in the San Diego Business Journal and here on our blog. If you missed the first edition, read it here.

Surveying the changing business landscape in San Diego

The COVID-19 pandemic has impacted every facet of life, including how businesses operate. Companies in every industry are rapidly re-evaluating how they do business, changing the way they interact with customers, manage supply chains and where their employees are physically located. This has massive immediate and long-term implications for San Diego’s workforce and job composition, as well as regional land use decisions and infrastructure investment.

To identify evolving trends in local business needs and operations, ensuring their ability to grow and thrive in the region, EDC is surveying more than 200 companies in the region’s key industries on a rolling basis throughout 2021 to monitor and report shifts in their priorities and strategies. In addition, EDC constructed the San Diego Business Recovery Index (BRI)—a sentiment index to measure companies’ perceptions of current conditions, as well as expectations for the future across several factors such as business development, employment and commercial real estate needs. Review the BRI concept and methodology here.

These insights will help inform long-term economic development priorities around talent recruitment and retention, quality job creation and infrastructure development. Companies are surveyed on several topics, with varying emphases in each wave.

Here are three key findings from the second wave of surveying conducted in April 2021:

  1. The worst of the pandemic is behind us. Companies are very bullish about the next six to 12 months and, as a result, plan to accelerate hiring.
  1. San Diego’s innovation cluster is (mostly) booming. Life Sciences companies lead the way while Cyber and Aerospace firms are still working through pandemic-related challenges.
  1. Companies are seriously reevaluating their space needs. Smaller firms are looking to expand their footprint, while traditional Tech companies may be scaling down.

The worst is behind us

San Diego companies indicated that they think the worst of the pandemic has passed. With a BRI of 58.9 in April, regional firms noted that they plan to hire or rehire workers at a slightly faster pace than they have up to this point, while also expanding remote work capabilities going forward.

Last month’s index reading reflects bullish assessments of, both, present conditions (the present conditions subindex registered a value of 56.1) and expectations for the future (subindex of 65.4). Companies noted some lingering effects from a full year in lockdown, including difficulties with business development and job losses, and neutral to slightly negative feelings on remote work over the past year. Nonetheless, firms reported bright views on the current state of the regional economy and noted that San Diego businesses and key industries have adapted to the pandemic better that those in peer regions.

Regional companies were even more upbeat when it came to expectations for the future. All of the index’s expectations subindex values were north of 50, and companies overwhelmingly believe that the regional economy will have improved significantly in the next six months (subindex of 72.7) and even more so within the next 12 months (subindex of 86.2). This is important because many companies make decisions today based on their assessments of business conditions in the near future.

Most companies shared in the optimism, but to varying degrees. Small companies with fewer than 50 employees that were hardest hit during the pandemic held slightly dimmer, though still generally positive, views than their larger counterparts. In particular, smaller firms cited ongoing difficulties accessing new customers, managing suppliers and vendors, and hiring and retaining workers. Even so, assessments of current earnings trends were only slightly negative, and small firms held a sunny disposition when it comes to the current state of the San Diego economy and business climate.

Interestingly, however, companies with fewer than 50 workers had the highest level of optimism for the future across business size cohorts, which could signal an inflection point for the pace of hiring in the coming months. This bodes especially well for the jobs recovery heading into the second half of 2021, as 96 percent of San Diego’s businesses have fewer than 50 employees and small businesses have historically accounted for roughly half of all job growth.

San Diego’s innovation cluster is (mostly) booming

San Diego’s innovation cluster overwhelming expressed optimism entering 2021, as companies shifted toward meeting the demand for life-saving technologies, treatments and personal protective equipment leading to record venture capital investment and renewed job growth. However, a closer look reveals mixed results within the cluster. Industries like Cleantech, Software and Biomedical Device producers all held especially confident views (BRIs in the mid-60s), while Telecommunications, Cybersecurity and Aerospace each signaled ongoing challenges from the pandemic (BRIs ranging from 43 to 50).

Biotech and Biomedical Device manufactures hold strong expectations for the regional economy, with plans to increase their headcount and real estate footprint during the next year. In addition, they expect to increase their use of remote work over the same time frame. While this may seem contradictory, it reflects the modifications and enhancements that many companies are making to protect workers on the production floor, as well as those necessary to attract workers back into the office. Workers want to feel safe once back on company property and they also want to maintain the flexibility that working remotely has provided. To accommodate these needs, employers are preparing for a flexible or hybrid workplace once reopen. In addition, many companies are reconfiguring and even seeking new space to keep workers spread out, adapting space to be more comfortable in a post-pandemic environment. This includes ‘hoteling’ and ‘neighborhooding’ models to help reduce the flow of people and simultaneously allow teams to collaborate in person. Companies are preparing for a gradual return to the office to give workers adequate time to warm up to pre-pandemic routines. More on that below.

While Telecommunications and Cybersecurity firms all share this optimistic regional economic outlook with their Life Sciences peers, these industries are much more subdued about their own expansion plans for the next year. On net, they see their needs for space as unchanged, with some modest reductions in hiring compared to typical years. This reflects the challenges these industries have faced during the pandemic, namely with respect to increased difficulty with sales, hiring and, somewhat surprisingly, inefficiencies from remote work. Aerospace has not yet recovered from the initial impacts of the pandemic, still reeling from significant hits to both sales and employment, as well as disruptions in their supply chains from lockdowns and restricted international travel and transportation.

Smaller firms are looking to add space

After more than a year of implementing remote work and reduced onsite staffing, companies are beginning to plan for a return to the office. However, how much space awaits those returning to the office will vary by industry as well as firm size.

It is small- and medium-sized firms that are looking to expand their commercial real estate footprint over the next year rather than larger firms. In fact, the proportion of firms surveyed that expect to increase space by 10 percent or more of their current square footage is nearly double that of those planning to reduce their current space by 10 percent or more (16 percent to 8.4 percent, respectively). However, when you factor in the size of each company, those planning significant real estate growth represent only three percent of the jobs compared to 13 percent of jobs for those looking to reduce space significantly (companies surveyed collectively employ nearly 200,000 workers).

When we look at the innovation companies, we see some stark differences between traditional Technology and Biotechnology industries. Eight percent of respondents representing 22 percent of jobs plan to reduce their space by more than 10 percent—mostly in the Telecommunications industry. However, nearly 26 percent of respondents representing 41 percent jobs expect to add modest amounts of space less than 10 percent of their current footprint. Here many respondents are in the Biomedical Device and Biotech industries and likely in need of additional production or lab space.

Understanding these evolving and distinct trends is important because San Diego’s innovation cluster is leading the region out of this pandemic-driven economic downturn, just as it has in each past downturn. Each job added in the innovation cluster supports another two jobs elsewhere in the economy. Yet, these innovation companies do not necessarily need to be physically located in San Diego in order to operate. Making sure these companies have the infrastructure and access to talent that they need to flourish is critical to our region’s prosperity.

Stay tuned for more on San Diego’s changing business landscape. EDC will be back every other month with more trends and insights. For more data and analysis visit: sandiegobusiness.org/research.

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San Diego’s Changing Business Landscape: The next normal is here

San Diego Regional EDC is excited to kick-off our Changing Business Landscape Series, which will be published bi-monthly in the San Diego Business Journal and on our blog.

Surveying the changing business landscape in San Diego

The COVID-19 pandemic has impacted every facet of life, including how businesses operate. The San Diego region began the year with near-record high unemployment and widespread small business closures. Meanwhile, large companies across the globe have extended remote work well into 2021 and are even abandoning their corporate campuses. Companies in every industry are rapidly re-evaluating how they do business and changing the way they interact with customers, manage supply chains, and where their employees are physically located. This has massive immediate and long-term implications for San Diego’s workforce and job composition, as well as regional land use decisions and infrastructure investment.

To identify evolving trends in local business needs and operations, ensuring their ability to grow and thrive in the region, EDC began surveying more than 200 employers in the region’s key industries in January. Given the uncertainty of this moment in history, EDC will continue to survey these companies on a rolling basis throughout 2021 to monitor and report out shifts in their priorities and strategies. These insights will help inform long-term economic development priorities around talent recruitment and retention, quality job creation, and infrastructure development. Businesses are surveyed on several topics, with varying emphases in each wave.

Here are three key findings:

  1. Everything is different, yet the future is bright. The pandemic has fundamentally altered how businesses operate across key industries. However, most companies are optimistic about their ability to pivot and emerge even stronger.
  1. Remote working is no longer a perk or competitive advantage—it’s the standard. Most companies view remote working as here to stay. This is viewed as both a benefit and as a threat to employee retention.
  1. Long commutes have been replaced by a blurring of work-life boundaries. Companies are struggling in maintaining employee morale and engagement. While many are seeing signs of employee burnout and isolation, few report significant concerns with retention.

San Diego’s innovation cluster rises to meet the challenge

One year into a global pandemic, San Diego’s most innovative companies and industries are well on their way to economic recovery. In fact, high-wage jobs—many of which are concentrated in aerospace, life science, and technology industries—have more than recovered from the pandemic-driven recession. This is welcome news as these are key drivers of economic growth in the region. In fact, every “innovation” job supports another two jobs elsewhere in the economy.

Even though growth has returned to the innovation cluster, the pandemic has disrupted the way these companies operate. The overwhelming majority (83 percent) of companies surveyed agree that the pandemic has fundamentally altered their industry. Yet, nearly as many (81 percent) feel that their industry has been able to adjust and remain healthy. Even more encouraging, 87 percent believe their industry will emerge even stronger once the pandemic has ended after adopting new ideas and implementing new strategies. However, those in the aerospace industry express somewhat lower levels of optimism, as the industry faces continued uncertainty around travel safety and demand.

Confidence is somewhat lower among smaller firms. Only 77 percent of those with fewer than 50 employees agree that their industry would emerge stronger and 10 percent strongly disagree. This likely reflects the disproportionate impact that the pandemic has had on small businesses, regardless of industry. While those in leisure and hospitality have certainly been the hardest hit, even small firms in professional and business services, including scientific and technical services, are currently experiencing lower revenues compared to before the pandemic.

Yet, the strongest signal for optimism comes from the direct response in combatting the novel coronavirus. San Diego companies have been among those leading the fight in everything from personal protective equipment and diagnostics to therapeutics and vaccine development. The life-changing and life-saving companies have pivoted and innovated yet again, drawing in record levels of venture capital investment. In the fourth quarter of 2020 alone, the region received nearly $2.7 billion in venture funding—with almost three-quarters going to life sciences and healthcare companies—which is more than three previous quarters combined, and $2 billion more than Q4 2019. The surge in investment and jobs recovery has the majority of innovation companies confident in the region’s ability to grow in prominence, or remain steadfast as a global leader in tech and life sciences.

The war for talent has no bounds

Talent has always been San Diego’s competitive advantage. People come from all over the world to get educated and build meaningful careers in everything from software engineering and autonomous vehicles to genomics sequencing and cybersecurity. San Diego’s innovation industries are among the highest-paying and fastest-growing in the region. Despite a global pandemic, many of these industries are accelerating hiring. The information sector, including telecommunications and information technology services, posted 20 percent more unique job ads in December 2020 than the year prior.

However, top talent remains hard to find. And while many of the jobs in these industries have shifted to either partially or fully remote, there are mixed feelings about whether it is a benefit or a detriment to talent recruitment and retention. Perceptions are tied to a company’s approach to attracting remote talent (see below). On one hand, a majority of respondents think that their ability to hire and retain skilled talent will not be impacted by the pandemic because of remote work capabilities. Many have expanded their recruitment beyond San Diego’s borders and are willing to accommodate working from outside the region to retain the very best talent. These San Diego-based companies that view the world as their pool for talent are embracing a global workforce that can get the job done from anywhere.

Yet, there is also a large minority of companies that view the pandemic as impacting the way they hire and retain talent. Again, the shift to remote work is cited as the top reason, with an even larger proportion (35 percent) identifying it as the cause for their pessimism. In fact, 45 percent of survey respondents rate hiring new employees during the pandemic as either “difficult” or “more difficult” than before, compared to 18 percent who view it as “easier” or “much easier.” Furthermore, nearly half of respondents cite talent recruitment as an area needing assistance and 20 percent identify it as an “urgent need.”

The pandemic has leveled the playing field for markets aiming to attract the best and brightest knowledge. San Diego’s competition with companies and regions across the country has increased. The region’s high cost of living is by far the biggest impediment to talent attraction, with 44 percent of respondents identifying high home prices as the most negative attribute of the San Diego market. This is due in large part to housing production not keeping pace with employment growth. As a result, San Diego has the second highest median home price among the 25 largest metros in the U.S., behind only San Francisco, and home prices jumped another 11 percent in 2020. Ensuring San Diego is an attractive and affordable place for talent and business is critical to maintaining its regional competitiveness.

Responding to workers’ needs is top of mind for companies

Transitioning to a remote work environment has been challenging. Business leaders are acutely aware of the need to balance conducting business as usual and responding to the changing needs of a newly remote workforce. Survey respondents report signs of ‘zoom fatigue,’ blurred work-life boundaries, and isolation among employees. While it has not yet significantly impacted retention, a full 60 percent of respondents rated “maintaining employee morale” as more challenging during the pandemic.

Furthermore, respondents expressed concerns about returning to an in-person work environment, recognizing that not all employees will want to return to the office immediately or full-time. This next phase of work will bring about a new set of challenges and a need for new policies, systems, and support for San Diego workers. Many questions remain around how much space will be needed and how it might need to be reconfigured to accommodate a flexible work environment that is also responsive to new health and safety requirements.

Survey respondents rated individualistic factors related to professional growth and work-life balance as the most important attributes to a competitive market for talent attraction and retention. This differs greatly from perceptions from just four years ago, when top universities and an entrepreneurial spirit were more top of mind. The desire to adapt and respond to the most pressing needs of its workforce, reinforces the notion that San Diego businesses value talent above all else.

Stay tuned for more on San Diego’s changing business landscape. EDC will be back every other month with more trends and insights. For more data and analysis visit: sandiegobusiness.org/research.

This research is made possible by:

COVID-19 and its impacts to San Diego Air Travel

While so much is still unknown about the future of travel in a post-COVID world, World Trade Center San Diego (WTC) is working with San Diego International Airport (SAN) to understand how to build back an economy that is even stronger and more resilient. The connectivity provided by the airport will continue to be a vital aspect of our region and WTC remains committed to working alongside the airport and the San Diego Tourism Authority through this recovery.

WTC, San Diego Tourism Authority, and San Diego International Airport are spearheading a COVID-19 economic recovery strategy that focuses on flight retention and expansion.  As a result of the pandemic, the economic climate surrounding air travel has been unprecedentedly impacted, and SAN has felt those negative impacts. Since the beginning of the stay-at-home orders in March 2020, COVID-19 has resulted in a cumulative loss of over $396 billion for the U.S. travel economy.

As a key partner to SAN, WTC works to improve regional competitiveness and bring flights back to San Diego in a post-COVID world with a focus on business travel and economic activity.

“The shutdown has caused unprecedented disruptions to trade and travel, but we know access to global markets is an essential part of our regional recovery. Nonstop international service is correlated with an average 20 percent increase in investment flows between destinations, which is why retaining global service out of SAN—and being intentional about how we fly—should be one of our region’s highest economic development priorities,” said Nikia Clarke, Executive Director, WTC San Diego.

In support of SAN’s efforts, WTC has launched a corporate travel survey and conducted interviews with local business leaders to make sure SAN is aligned with the business community needs in their comprehensive recovery strategy.

Key takeaways from WTC’s Corporate Travel Survey:

  • 52% of companies have not cut travel budgets for 2021
  • 64% anticipated increased support in local businesses and economy
  • 76% of companies expect for Domestic U.S. travel to resume within the next 6 months
  • 3% of companies expect for international travel to Europe to resume within the next 6 months

#flylocal

San Diego International Airport’s regional economic impact is vital for the economic and employment recovery efforts of the region. In 2017, SAN’s annual economic impact was valued at $11.8 billion-total amount that circulates back to the regional economy. SAN has taken the safety of travelers as a core pillar in its reopening efforts, assuring safety and tranquility for San Diegans to #flylocal and help economic recovery at home.

ABOUT WORLD TRADE CENTER SAN DIEGO

World Trade Center San Diego operates as an affiliate of the San Diego Regional Economic Development Corporation. WTC San Diego works to further San Diego’s global competitiveness by building an export pipeline, attracting and retaining foreign investment, and increasing San Diego’s global profile abroad.

Do you want to know more about the work of World Trade Center San Diego? Click here to receive our monthly Global Brief Newsletter, delivered straight to your inbox.

Economy in crisis: SD tourism holds up, but the recovery remains uneven

THE KEY TAKEAWAYS…

  • San Diego’s accommodation sector is performing well as summer draws to a close.
  • Hotels have been slow to rehire workers, but recent metrics suggest that a strong spate of hiring is in the cards.
  • The recovery has been uneven, but a number of industries have recouped most of the jobs lost to COVID-19.
  • A number of industries still have a long way to go, and many may never recover all of the jobs lost from COVID as businesses shift their business models.

SAN DIEGO TOURISM ON THE UPSWING

San Diego’s accommodation sector is holding its own despite another wave of COVID-related closures amid a spike in cases. Hotels in particular are closing out the summer on a high note, with the supply of rooms within striking distance of pre-COVID levels as of mid-August. The average daily rate (ADR) for rooms is climbing back somewhat more slowly but, at about $150 per night, is up some 67.4% from COVID lows in early May.

It took about a month, but as the COVID downturn intensified, accommodation employment tracked changes in room supply and average daily rates nearly one-for-one. That relationship would have suggested that accommodation employment should have grown by about 3,500 positions in July. Instead, employers only added back just 100 jobs, signaling caution on the part of hotels as the economy slowly climbs out of the crater left by the COVID-19 outbreak.

The caution within the industry makes sense. Laying off workers is painful for employers and employees alike, which is a likely reason why hotel employment didn’t falter until April and May, even though the impacts of COVID were felt as early as March. Similarly, instead of bringing workers back on just to have to let them go again in the event of another flare-up of the virus accompanied by additional closures, hotel managers may be taking a wait-and-see approach to rehiring. Nonetheless, recent industry performance suggests that hotels should be bringing about 8,000 to 8,500 workers back on to accommodate the increase in room supply and rates over the past couple of months once they feel it’s safe to do so.

As of the July employment report, accommodation employment rested at 17,800, up 43.4% from May’s low of 12,400 but still 43.3% below its pre-COVID peak of 31,400 in February. Given that expected hotel revenues—measured by the room supply multiplied by average daily rates—are just 16.5% below pre-COVID levels, employment should quickly follow. An increase of 8,000-plus employees would bring hotel employment more in line with expected foot traffic at hotels and would follow the trend seen so far during the downturn.

SAN DIEGO FACES AN UNEVEN RECOVERY

To say that the COVID downturn and subsequent recovery have been uneven across industries would be an understatement. The hotel industry’s improvement is encouraging, and a number of industries are at or near their pre-COVID employment levels, including: Heavy and civil engineering construction; building equipment contractors; computer and electronic product manufacturing; aerospace manufacturing; grocers; securities and commodities investment; and scientific research and development services.

However, total nonfarm employment in San Diego is still down 10.5% from February due in large part to slower rehiring in industries like restaurants and bars; personal services, such as dry cleaners and other laundry services as people work from home; and local government education, likely reflecting school jobs aside from teachers—like administrators, janitors, etc.—as the county waits to resume in-person teaching.

Unfortunately, many of these jobs will be slow to come back due to their face-to-face nature. What’s worse, many of those positions may not return at all. Even with the advent of a safe and effective vaccine, many businesses have changed their fundamental business models and have adopted new operational norms—like Twitter, who made working remote a permanent option for employees. As a result, the same positions required for those companies before the COVID outbreak may no longer be necessary to operate in the post-COVID world.

The impact of COVID has not only affected the lowest-paid among us in San Diego, but it has hurt communities of color the worst. Now, more than ever, targeted and effective solutions are needed to help these communities not just recover but thrive in the future. Reskilling and training of the workforce and offering equal access to capital for minority-owned businesses are not just ethical and moral necessities—they are economic ones, too. Because, we all do better when everyone is doing better; and a more resilient San Diego economy will help us all in the long-run.

For more COVID-19 recovery resources and information, please visit this page.

Regardless of how this all plays out, EDC is here to help. You can use the button below to request our assistance with finding information, applying to relief programs, and more.

Request EDC assistance

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Just Say No to Winter makes a cool comeback

This post originally appeared on SDlifechanging.org. San Diego: Life. Changing. is an EDC led initiative focused on attracting and retaining STEM talent in San Diego. Check out the company map and more for information about working and living in San Diego.


It’s that time of year again. The holidays have come and gone, only to be replaced by subzero temperatures, snow-covered driveways, and really angry people commuting to work. Not exactly the kind of “chill” we’re into here in San Diego (where it’s currently 64 degrees Fahrenheit). So we’ve brought back our Just Say No to Winter campaign to remind everyone that life doesn’t have to be like that. You can actually have a meaningful career at an awesome company without freezing all season.

This year, we partnered with the San Diego Tourism Authority to make Just Say No to Winter bigger and better than ever. In addition to the digital ads served in chilly regions and the Boston subway ads we did last year, the campaign now includes subway ads in Chicago and a live activation with Surfer Sam on the stone-cold streets of New York City.

SD’s Surfer Sam paddles through NYC

From January 21-23, Surfer Sam will be walking around with a bright orange surfboard, telling people to “just say NO!” And if that doesn’t entice them, perhaps winning a trip to San Diego would. One lucky New Yorker will win a pair of roundtrip airfare with JetBlue Airlines from NYC to SD, a 3-night stay at downtown San Diego’s luxury Pendry hotel, and even a walking food tour with So Diego Tours.

Click on any of the photos below to check out some of Surfer Sam’s NYC encounters. And if you live in New York, there’s still time to catch Surfer Sam and win a trip to San Diego! Follow along on Instagram Stories for her whereabouts.

Why are we telling people to “just say no to winter?”

“Last year, San Diego saw nearly 105,000 unique job postings for STEM-related occupations,” said Mark Cafferty, president & CEO at San Diego Regional EDC. “With tech heavyweights such as Qualcomm, Illumina, Viasat and now Apple who all cite talent as a major reason for their presence in our region, we must continuously strive to remain competitive by attracting, retaining and developing skilled workers. Plus, as a Boston native, I can confidently say that it is possible to have a great career without freezing every day.”

While the demand for quality STEM talent is at an all-time high nationwide, the Just Say No to Winter campaign was introduced in January 2019 in an effort to bring and retain talent to San Diego, resulting in ‘go-viral’ status, national media attention and 123 million impressions. EDC, through its SD: Life. Changing. platform, juxtaposed footage of San Diego’s (nearly) year-round sunshine with harsh, freezing winters in metros across the country, while also showcasing mission-driven companies that call this place home.

This year, with support from SDTA, EDC will be expanding its public transit advertising inside subways to Chicago and Boston and executing various digital marketing tactics, including paid and organic social media, to direct talent to justsaynotowinter.com. The Just Say No to Winter landing page will now feature links to a company map, 28 neighborhood profilestalent video profiles, and details on a campaign sweepstakes.

“Our region is a top travel destination, and it’s also home to numerous tech and life sciences companies that are doing great, life-changing work,” said Kerri Kapich, COO at the San Diego Tourism Authority. “We often hear travelers say that they fall in love with San Diego when they visit and wish they could do business here, which is why we’ve partnered with EDC. Together, we’re encouraging more people to visit San Diego and see for themselves that San Diego really is the best place to live, work and play.”

San Diego: Life. Changing.’s Just Say No to Winter promotion will run in conjunction with EDC’s Inclusive Growth Initiative and Advancing San Diego program, allowing for regional employers to also look inward and develop local talent. To learn more about the campaign, visit justsaynotowinter.com.

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