San Diego Information

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AREA ANALYSIS The dynamic nature of economic relationships within a market area have a direct bearing on real estate values and the long-term quality of a real estate investment. In the market, the value of a property is not based on the price paid for it in the past or the cost of its creation, but on what buyers and sellers perceive it will provide in the future. Consequently, the attitude of the market toward a property within a specific neighborhood or market area reflects the probable future trend of that area. Since real estate is an immobile asset, economic trends affecting its locational quality in relation to other competing properties within its market area will also have a direct effect on its value as an investment. To accurately reflect such influences, it is necessary to examine the past and probable future trends that may affect the economic structure of the market and evaluate their impact on the market potential of the subject. This section of the report is designed to isolate and examine the discernible economic trends in the region and neighborhood that influence and create value for the subject property. Where available, 2002 data has been referenced herein. References in 2001 economic data reflects the most current data published by the respective organization or government agency. REGIONAL INFLUENCES – SAN DIEGO COUNTY Location San Diego County is located in Southern California, with the Pacific coastline on the western edge and the Anza Borrego Desert as the eastern border. The topography is broad coastal plain (where urbanization has occurred), with hills and mountains in the central portion, and desert area to the east. The urbanized areas of the county enjoy a Mediterranean climate. Population Characteristics San Diego County ranks third in population among California’s 58 counties, behind Los Angeles and Orange, and fourth as the most populous county in the nation. The 2003 population estimate for the county, according to the California Department of Finance, was 2,961,600. This was an increase of 1.8 percent over the 2002 figure, which follows to 2.0 percent increase in 2001 and a 1.75 percent increase in 2000. The past, present and projected population for San Diego and Southern California’s largest counties. County Incomes/Purchasing Power Median household income increased 6.2 percent to $54,293 in 2003, which follows a 3.4 percent increase in 2002, and a 3.9 percent increase in 2001, according to the Economic Research Bureau. A 7.0 percent increase to $58,100 is forecast in 2004. The relatively strong purchasing power of the county’s large and growing population base is a positive factor for future real estate demand. County Employment Trends San Diego has a diversified economy driven mostly by high-tech manufacturing, tourism, telecommunications, biotechnology, retail, and defense spending. The latter makes up nearly 12 percent of San Diego’s gross regional product and still has a large influence on the San Diego economy as well as the real estate demand. Despite the decline since the 1980’s and early 1990’s, San Diego is still home to the highest concentration of military personnel in the United States. As of December 2003, the county unemployment rate was 3.7 percent, which continues to be favorable versus the higher rates of 6.4 percent for California and 5.7 percent for the nation. Despite the slowdown in the local economy, San Diego hasn’t seen the substantial jump in unemployment that was typical of past recessions for the area. San Diego’s unemployment reached a high of 8.9 percent in 1993 and 10.4 percent in 1983, both recession years. Employment growth slowed in 2003 with approximately 2,000 jobs being added, according to the State of California Employment Development Department. This is down from growth of 9,000 jobs in 2002 and 11,000 jobs in 2001. The private sector job base grew by 4,400 in 2003, while government jobs declined by 2,600 with most of that in public education. Most of the job losses in the private sector were in manufacturing, although this portion of the job market began to improve in the later part of 2003. According to the ERB, San Diego’s job market is expected to improve in 2004 as the economy improves. County Commerce/Economic Output The county’s gross regional product (GRP) was estimated at $129.2 billion in 2003, which was the highest recorded economic output for the region to date and represents a 2.4 percent increase over the 2002 GRP of $126.2 billion, according to the Economic Research Bureau. The San Diego Economic Research Bureau is forecasting a rise of 6.2 percent to $137.2 billion (constant dollars) in San Diego’s GRP for 2004, which reflects a recovery in the local economy in the later part of the year. San Diego’s economy underwent a significant transformation during the decade of the 1990s. From an economy historically dominated by defense and military expenditures, San Diego industries have transformed into a diversified mix of Telecommunications, Biotechnology, Electronic/Instrument Manufacturing, and computer related technologies. Some of these sectors were by-products of the defense-related industries and knowledge, as well as capitalizing on the highly educated and skilled labor force. As a while, the newer fields of science and technology now approximate the same percentage of GRP as military spending. According to the San Diego Economic Research Bureau, defense spending and related commerce totaled nearly $13.6 billion in 2002 (most recent data published), up nearly 30 percent over 2001 expenditures. This increased stemmed mainly from increased defense spending after 9/11 and build-up to the war with Iraq. San Diego county rated number 3 in defense spending nationwide, behind Los Angeles and Fairfax counties. Increased defense spending is expected in the next several years, especially with high technology warfare applications, which will benefit local defense contractors and the Navy’s SPAWAR division, which has a large presence in San Diego. The approval of the Homeland Security Bill and increased defense budgets are expected to continue to spur increases in defense contracts and federal spending in San Diego. The funds will largely be directed to the Navy’s SPAWAR division and their private sector contractors, as well as the local shipyards for Navy ship maintenance. International trade also contributed to San Diego’s economic recovery and strong performance in recent years. San Diego’s cross border trade and interactions with Mexico provide economic advantages and opportunities for local businesses, becoming an increasingly important facet of San Diego’s economic fortunes. San Diego exports totaled nearly $11.0 billion in 2000 (most recent data published). Mexico and Canada, the U.S. partners under the North American Free Trade Agreement (NAFTA) dominate San Diego’s export markets by far, accounting for more than one-half (55 percent) of all export production. San Diego has clearly benefited from NAFTA, not only because the agreement further opened up the markets of San Diego’s two largest customers, but because Tijuana and Baja California greatly benefited and was stimulated by the heightened trade and dollars flowing across the border. Electronics and electrical equipment, specifically, are San Diego’s top export commodities, followed by industrial machinery, and instruments. Specific products made and exported from San Diego, in addition to televisions, include other radio and broadcasting/communications equipment, cellular telephones, semiconductors, circuit boards, computers, and scientific, medical, and other measuring instruments. Retail and Tourism Industry Retail transactions in San Diego set a new record for sales volume in 2003 at $28.8 billion, which was up 5.1 percent from 2002’s $27.4 billion in retail sales. This compares with a 5.3 percent increase in 2001. The Economic Research Bureau is forecasting an increase in retail sales volume to $30.5 billion in 2004, up 5.9 percent over 2003. San Diego’s visitor industry is the region’s third largest economic sector. According to the San Diego Convention and Visitor’s Bureau (ConVis), visitor spending increased in 2003 to $5.33 billion from 2002’s total of $5.09 billion. The 2003 total is up 5.9 percent from 2002, and up from $5.12 billion on 4.1 percent in 2001. The increase in 2003 mainly resulted from the city hosting the Super Bowl in January of 2003. ConVis is projecting overall visitor spending will increase 3.5 percent in 2004 to $5.4 billion. San Diego’s visitor industry is expected to follow the national trend with modest increases forecasted in overall visitors, hotel room nights and visitor spending. San Diego’s performance is due to the area’s strength as a popular leisure travel destination and also to the expanded San Diego Convention Center (opened in September 2001). Residential Construction As stated in the recent San Diego Economic Outlook Publication, the number of residential permits is estimated to have increased to 18,266 in 2003, up 16 percent over 15,738 in 2002. However, the number of single family permits pulled declined to 9,364 in the county in 2003, which is a 4.0 percent drop from 2002. Permits were pulled for 8,902 multi-family units last year, up 48.6 percent over the 5,989 permits in 2002. This publication forecast shows that approximately 20,500 single and multiple units will be permitted in 2004. This represents an increase of 2,234 units than was permitted in 2003. The majority of new units built (near 10,500) for 2004 will be for single-family homes. The remaining 10,000 units will be built for multi-family dwellings units, which include duplexes, 3-4 unit structures and apartment buildings and condominiums with 5 or more units. Housing Costs The county’s median home price is high, due to the county’s attractive climate, large employment base, high-income levels, and pending housing shortage. Housing growth has been most rapid in the central and east county area, especially along the Interstate 805 and Interstate 15 corridors. The following table compares San Diego County with neighboring counties for the median price and number sold for all homes, and the percentage changes, as of January 2004. The totals for home sales include new and resale houses and condominiums. The price changes reflect shifts in market mix as well as changes in price. The reported median prices have been rounded to the nearest thousand and do not always correspond to the precise percentage change. The data in the table above reflect strong Southern California home sales, the result of buyer confidence and historically low mortgage interest rates. Sales have been particularly strong in San Diego County, which now accounts for approximately 17 percent of all southland sales. The median price paid for a home in San Diego County rose 17.9 percent to $396,000 from $336,000 in January 2003. Sales volume increased by 3 percent compared to one-year ago. County Education, Recreation and Culture San Diego County is home to the San Diego campus of the University of California, San Diego State University, several junior colleges, and several private and specialized colleges. The county has over 175 public beaches, recreation centers and parks, as well as several public golf courses. Outlook activities are an integral part of the San Diego lifestyle. Amusement centers such as the San Diego Zoo, Legoland Family Park (opened spring 1999), and Sea World area also located in San Diego County. Performing arts are available in downtown San Diego, in Civic Centers, and private theaters throughout the county. The county is also home to museums, San Diego Qualcomm Stadium, a sports arena, etc. A Managed Growth County Political Environment San Diego County residents have historically been viewed as pro-business, pro-growth and anit-tax. However, the county’s rapid growth has affected the county’s political outlook. In the late 1980’s, several slow growth initiatives were placed on county ballots. All were defeated, but a significant public sentiment remains for growth management. In general, residents have consistently resisted passing initiatives that could restrict growth to the point that it would be harmful to the county’s economy. However, citizens often elect “slow growth� and “managed growth� county supervisors and city council members. Conclusion: San Diego County San Diego is a growing metropolitan area with a relatively stable economy based on military, high technology, government, foreign trade, and service industries. After several years of strong economic growth and prosperity, San Diego’s overall economy was sluggish in 2003 for most sectors except for residential. The local economy, however, has not been adversely impacted to the same degree as the rest of the nation or other major high technology centers, such as Silicon Valley. The forecast for 2004 is for continued stability with more moderate growth returning within the next 12 to 14 months. Please refer to our market analysis section for further supply and demand analysis for the subject. City of San Diego San Diego County includes fewer than 20 incorporated cities. By virtue of its size and diversity, the city of San Diego dominated the county’s commerce and culture. The city has about half of the county’s population. The city is also geographically large, consisting of over 400 square miles. The city is accessed by the county’s three regional freeways: Interstate 5, Interstate 8 and Interstate 15. As a result, the city has good regional access characteristics. The future light rail system will serve the city’s regional public transportation needs along with Amtrak, both of which service downtown. Local access is provided by the trolleys, bus services, local roads and freeways, etc. San Diego is a city of mixed land uses. Most of the city consists of public vacant uses. The privately developed areas are mostly residential uses (20.7 percent of city’s area), with 10.1 percent devoted to agricultural uses. Industrial and commercial developments occupy 3.6 and 3.0 percent of the city, respectively. The city’s concentrated industrial areas are north of downtown, in the Miramar and Kearny Mesa areas. The city’s 250,000 square foot downtown convention center opened in 1989. It is already proposed for an expansion that would double the amount of exhibit space. The expansion would take about three years to complete. The city offers the typical pubic school system, police and fire services, etc. The city has several hospitals, five regional malls, an old town area and a downtown commercial core located on picturesque San Diego Bay. San Diego is one of the nation’s few large cities with residences as well as businesses utilizing its downtown. The city has a diverse employment base, a wide range of housing prices, and a reputation as a middle class community with San Diego County.