Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
The San Diego County economy maintained steady growth through the first three quarters of 2018. Expansion in the Professional & Business Services sector helped push the region’s unemployment rate down to a level not seen since 2000. In the local real estate market, commercial property building permits appear to be declining but data indicates this may be temporary.
Professional Business Services Lead Job Growth
Between August 2017 and August 2018, total nonfarm employment in San Diego County increased by 1.6% to reach a total of 1.47 million jobs. The 23,900 jobs added over the year have helped drive the County’s unemployment rate down 0.9 percentage points to 3.2% from 4.1%. Additionally, San Diego County’s growth in total nonfarm employment slightly outpaced Los Angeles (+1.4%) and Orange (+0.8%) Counties. However, local job growth has slowed compared to one year earlier, when San Diego County added jobs at a rate of 1.8%.
Over the past year, the Management sector and Professional, Scientific, and Technical Services sector have experienced the most job growth in percentage terms, at 5.6% (+1,200 jobs) and 5.8% (+7,500 jobs), respectively. These two sectors have been key contributors to San Diego County’s employment expansion as projects such as the Horton Plaza Redevelopment aim to house more technology and other office-reliant companies in the region.
The Leisure & Hospitality sector experienced the biggest decrease in the County, contracting by 2.2%, or 4,200 jobs. This was followed by Wholesale Trade, which lost 1,000 jobs, a decline of 2.1%.
Beacon Economics is forecasting the unemployment rate in San Diego County to end the year at 3.0%, and to remain in that range through 2019. Total nonfarm employment for 2018 is expected to reach 1.49 million jobs, representing a yearly increase of about 1.5%. Job growth in 2019 will be just shy of this pace.
Commercial Property Rents on the Rise
From the second quarter of 2017 to the second quarter of 2018, the average annual cost of rent for Office space in San Diego County increased 2.4% to $32.38 per square foot. For Retail properties, the average cost of rent increased 0.6% to $31.55 per square foot, and for Warehouse/Distribution properties, the average cost increased 3.1% to $8.71 per square foot. The vacancy rate for Office properties increased 0.5 percentage points to 15.3% from the second quarter of 2017 to the second quarter of 2018. Office properties in particular should be interesting to watch over the next couple of years as more than one million square feet of development will be completed – something that is likely to impact vacancy rates and rental costs.
From the second quarter of 2017 to the second quarter of 2018, the total value of building permits issued for Office property construction in San Diego County grew 140.8% to $8.3 million from $3.9 million. By contrast, the total value of permits issued for Office properties in neighboring Los Angeles ($234.9 million) and Orange ($802.1 million) Counties, was much higher.
Commercial permits for the second quarter of 2018 totaled approximately $109.6 million in San Diego County, a 40.7% decrease from the second quarter of 2017. As mentioned above, recent data suggests this may turn around if more Office-reliant companies identify San Diego County as a viable home. By comparison, total commercial permit values were significantly higher in Los Angeles ($560.1 million) and Orange ($946.8 million) Counties in the second quarter of 2018.