Downtown San Diego Poised For Boom In Innovation Economy

Downtown San Diego stakeholders have been working to attract innovative companies to Downtown with some limited success, San Diego Regional Economic Development Corp president/CEO Mark Cafferty told Bisnow.

San Diego County is ranked in the top 10 metro areas nationally for startups, fourth statewide, and No. 1 in California for life science startups. The region’s innovation economy is now producing 25% of its GDP.

The majority of innovative research and development firms and tech startup activities remain in biotech and military R&D clusters in the La Jolla/UTC, Torrey Pines and Kearney Mesa submarkets.

Cafferty said a University of California San Diego satellite campus proposed for East Village is a game-changer for Downtown. “Innovative companies gravitate to areas with great universities, because that’s where they can get expertise and talent.” Cafferty is shown above, far right, with members of his team at the SDREDC.  

Cafferty has been working in unison with the city and the Downtown San Diego Partnership to attract tech, digital, software and other innovative firms to Downtown. He said the presence of Sempra Energy’s headquarters (rendering below), UCSD and other major developments with office components will aid this effort. “We’re ahead of the curve, with the transformation of East Village from a gritty, decaying industrial district to a livable neighborhood, with new housing and amenities, including parks, restaurants, entertainment and a new library.”

More than 1M SF of creative office space is under construction or planned at three projects in Makers Quarter over the next four years; Cisterra Development’s 7th & Market mixed-use project will add another 450k SF of Class-A office space; and Holland Partner Group’s Park & Market has 66k SF, which will be occupied by UCSD.

Over the last year, the number of startups in Downtown San Diego has doubled to 110, according to the Downtown San Diego Partnership. Cafferty said the San Diego Venture Group, a nonprofit business association focused on funding and supporting startups, has established a satellite office in the Bay Area, dubbed The Beachhead, to gain access to 400 venture capital funds there and to drive deals to San Diego. “We will also use this place to provide information to Bay Area companies interested in relocating or establishing satellite offices in San Diego,” he said.

“We don’t want to poach jobs from other parts of the state,” Cafferty said, adding San Diego is focused on attracting companies considering a move out of state due to the high cost of living and doing business in the Bay Area.

“We also are having a lot of discussions with folks that want to expand to other areas of the state and are looking at San Diego, ” he said, mentioning calls from real estate agents with clients looking for alternative opportunities within the state have increased over the last year or two. Cafferty said San Diego's advantages include a comparatively lower cost of living and cost of doing business than the Bay Area, as well as lower labor costs and a highly educated and talented workforce, mild year-round climate and great lifestyle.

The rendering below is Block D, the Makers Quarter's first office project, which will open in late 2017 to provide 44,390 SF of creative office space and 8,935 SF of retail.

Additionally, San Diego’s proximity to Mexico, its international business focus, and binational relationships are advantages no other city in California or nationally can offer, he said. “Companies are looking at the cross-border relationships differently than in the past,” Cafferty said. Thermo-Fisher Scientific and Becton, Dickinson and Co have opened satellite offices in San Diego. They both consider a San Diego location an advantage, as they have operations in Tijuana. Below is BD's Tijuana plant. (BD acquired Care Fusion last year.)

“The San Diego region has become competitive internationally due to its binational environment and geography,” he said. Companies that may have expanded offshore are choosing to establish offices in San Diego and take their production facilities to Tijuana. “Our location’s proximity to the border is a valuable advantage,” Cafferty said. “It’s easier for company executives to travel from Carlsbad to Mexico than to Bangladesh, India.” It also eliminates time differences and breakdowns in communication, and is more cost-effective from a logistics standpoint in getting products to U.S. markets.

Airlines are adding nonstop international flights from the San Diego International Airport. Cafferty said there is daily nonstop service to Tokyo and London. “As a result, we’re now seeing increased deal flow between the UK and San Diego, and a very strong engagement of Japanese firms in local biotech companies,” Cafferty said.

He said Osaka, Japan-based Takeda Pharmaceutical Co has invested in two San Diego life science firms: PvP Biologics, which is developing a celiac therapy, received $35M; and Avidity Biosciences, which invented technology that improves RNA delivery, received $16M from Takeda Ventures. Kyocera Americas, a telecom and electronics developer, is designing products in San Diego and manufacturing them in Tijuana.

Later this year, airlines will start to offer nonstop service to Zurich and seasonal nonstop service to Frankfurt.

“San Diego has to think critically about who we are at present and what we want to become,” he said. “The presence of a great university, smart people, and the arts and culture will help us great there.”

Hear more from Cafferty and other local Downtown experts at Bisnow’s Urbanization & Future of Downtown event on Jan. 17 at The Westin San Diego.