Does SD Have a Handle on its Tech Sector?

Stacey Pennington (left) speaks to how Makers Quarter is sensitive to the needs of various levels of tech companies.

SAN DIEGO—With 18% growth in software-development jobs expected here in the next several months, according to moderator Tiffany English , principal with Ware Malcomb , San Diego is just beginning to realize how important its tech sector is to its viability as a region, speakers at CREW San Diego ‘s lunch event yesterday say. The panel talked about the drivers bringing tech companies to San Diego, which submarkets are drawing certain types of tech companies and whether startups will stay here once they themselves grow viable. English asked the panel what distinguishes San Diego from other tech markets. Kayla Trautwein , senior portfolio manager for startup incubator EvoNexus , said for one thing, San Diego is a much more laid-back and community oriented than markets like L.A., Silicon Valley and New York. There’s a collaborative vibe, plus there are more engineering schools here than there are in Silicon Valley, which brings in young talent. Star Hughes-Gorup , director of Hughes Marino , said San Diego’s lower cost of living compared to many other tech markets is another draw. “San Francisco is 48% more expensive than San Diego.” And while salaries are lower here, office space is extremely affordable , with San Diego coming in at one-third the rental rates of San Francisco—which just eclipsed New York as the most expensive office market in the country. Stacey Pennington , founder and president of SLP Urban Planning , a developer of Makers Quarter in the East Village of Downtown San Diego, said Makers Quarter is helping to bring modern office space to Downtown, and tech startups are going for it. “The quality of life here is better than in other markets. We are open to collaboration, and people are drawn to that.” She mentioned Feets , a company that uses 3D printing to create a custom shoe that matches your foot, saying that this firm got its start at Fab Lab , a maker space Downtown. “The CEO had moved to Nashville and recently returned to San Diego because of the spirit of collaboration here.” English asked the panelists which tech sectors are drawn to which San Diego submarkets. Hughes-Gorup said tech companies “like to cluster,” so sports tech is drawn to Carlsbad—where half of all San Diego’s action-sports jobs are; the I-15 corridor attracts telecom companies; Sorrento Valley brings in biotech ; Torrey Pines draws life sciences ; and UTC has a good mix of companies. She added that Downtown has seen the most growth from the tech sector of all the submarkets here, with companies seeking to move there for the collaboration and urban vibe. From an amenities standpoint, Downtown companies rely on outside amenities (i.e., restaurants , gyms, retail ), whereas suburban submarkets like UTC and the I-15 corridor are more likely to host large campuses with on-site amenities. “This puts pressure on landlords to create high-end campuses for users,” Hughes-Gorup said. She added that Downtown’s office vacancy is the lowest it’s been in two decades, with 98% of the space leased. In discussing the competitive advantages San Diego possesses, Trautwein said, “Talent down here is cheaper, and there’s a sense of loyalty in San Diego. There’s less competition, so talent is not as likely to be poached” as in the Silicon Valley. Sara Burg , senior project manager for CBRE , described three levels of tech startups: the early-stage or “they don’t know what they don’t know” firms that require confidence building from their real estate firms; mid-stage firms who “know what they don’t know, and it overwhelms them,” that are on their way but sometimes get bogged down in the details of growth; and established or later-stage firms that need more financial-planning and investment help as well as a longer-term growth plan. Pennington said this assessment was dead-on accurate and chronicles what she has been through with Makers Quarter. She said in commercial real estate , a year out—projected time for completion of the first stage of Makers Quarter’s office space—is “a sneeze away,” but for tech startups, most can’t plan that far ahead. She added that companies are adjusting to considering Downtown offices as the region gains a more unified feeling, and this will help the tech clusters. English asked if the trend of San Diego’s startups getting bought and moving away from the region will change, causing companies to stay, and Pennington said, “Yes. There are many amazing groups getting their acts together, which is empowering and legitimizing our market.” Trautwein said corporations are also helping, from the Irvine Co. contributing 40,000 square feet of pro bono space for startups to corporate sponsors putting seed money into startups. “More companies in San Diego are looking to grow, not just flip, so we need more active venture-capital companies here. We lose to the Bay Area on this often.” English asked Hughes-Gorup what companies who are leaving incubator space are looking for in new space, and Hughes-Gorup said it comes down to amenities including access to restaurants and outdoor space and free in-building gyms. Also important are short-term (one to three years) leases and immediate (within a month) move-ins. Pennington added that growing firms are also seeking the “look” of a company that has made it, including glass-front offices. She spoke of the value of internalizing amenities in suburban campuses versus fully externalizing them in urban campuses and creating an environment that’s completely artificial to the location—the way companies like Alexandria do—but work in that location to the degree that companies would be lost without that environment. Burg said what firms are looking for depends a lot on the age of the company leadership and what they care about. Older leadership cares more about private offices, while younger leadership—even at the CEO level—will bench with entry-level employees.