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OED presents yearly business development update

CEDC hears summary of fiscal year 2018-2019 activities

Post Date:02/20/2020 3:13 PM
CEDC.1-2020

In January, OED presented its yearly update on business development activities and trends to the Community & Economic Development Committee (CEDC) of the City Council. The presentation can be viewed online. This briefing, covering fiscal year 20180-2019, provides policymakers with a look at what made our economy tick in recent months, as well as what we’re watching going forward. The presentation was made by (from right in photo) Chris Burton, Deputy Director of Economic Development, Nathan Donato-Weinstein, Business Development Officer, and Dhez Woodworth, Economic Development Officer/Business Services.

Summary and highlights

San Jose continued to attract businesses of all sizes over the last 12 to 18 months, even as companies faced continued pressures related to costs, labor and permitting. Some highlights:

  • Several big-name companies moved in or signed leases to relocate to San Jose. Bloom Energy Corp., Micron, Hewlett Packard Enterprise, and Lumentum that occupied major space in 2019. Companies that leased significant space over the last year include Roku, Verizon, and Bill.com.
  • Hardware and R&D-oriented companies accounted for much of the leasing activity, in contrast with Peninsula/San Francisco where social media/software tends to rule. This speaks to the strength of our building base for these types of uses, as well as our skilled labor pool.
  • Despite uncertainties over international trade, San Jose continued to be a focus for overseas investors, including from China.
  • Retail continues to evolve, and we have seen some positive momentum in re-leasing of vacant big-box space. A major highlight was the opening of Living Spaces at the former Sears at Westfield Oakridge. At the same time, we are seeing more interest from businesses that aren’t traditional retailers filling retail space.
  • Costs have risen for all types of construction and that’s put some projects on pause.
  • As the development pipeline and the economy grows, there’s rising concern about the potential for small-business displacement. City staff is currently working to identify potential strategies to mitigate this downside of growth.

For more details, charts and statistics, download the full Information Memo.

Business climate and state of play

In San Jose, a business ecosystem of roughly 53,000 establishments employs approximately 438,000 people.

Businesses are expected to contribute $258 million to the City just in sales tax alone for FY2019-20, which is equivalent to nearly 20 percent of the City’s general fund.

Less quantifiable benefits include the activation of neighborhood business corridors, wealth creation within disadvantaged communities, and the pride that comes with hosting a strong commercial enterprise or unique company.

San Jose’s unemployment rate in November of 2019 was just 2.4 percent, which is among the lowest rates in at least 10 years in San Jose. That equates to about 13,500 unemployed people who are actively looking for work. Five years ago, there were 30,400 unemployed people in San Jose looking for work, an unemployment rate of 5.8 percent.

San Jose’s largest industries are, in order, manufacturing; government; professional, scientific and technical services (PSTS); health care; and retail trade.

Over the last five years, manufacturing added 15,000 jobs, PSTS added 9,500, construction added 6,500, health care added 6,500, and accommodation/food services added 5,000. Retail jobs remained fairly stable.

Business outreach

OED’s business development team includes 12 full-time employees, as well as 1.5 full-time-equivalent positions in our work2future program.  We are involved in several key areas of engagement with the business community: direct outreach, providing targeted services; and providing “concierge” support to companies working with the City’s various permitting and inspection processes. In addition, we are responsible for economic development policy work, tracking emerging trends and communicating the city’s value proposition and brand with key internal and external audiences.

BD cosIn the fiscal year covered by this memo, San Jose welcomed several large companies as a result of staff recruitment efforts - though these attractions were usually the result of groundwork laid years earlier. These included Bloom Energy Corp., which moved 440 workers from Sunnyvale to North San Jose; Micron, which moved 500 from Milpitas to North San Jose; and Hewlett Packard Enterprise, which moved roughly 1,000 from Palo Alto to North San Jose. Staff is currently working with Infinera as that company plans to move 600 employees from Sunnyvale to Edenvale, and with Roku as it builds out a new campus at the Coleman Highline development for 1,000 workers.

Staff also celebrated several businesses that remained in the city when faced with an option to leave. These retentions are key for the City’s business portfolio because most job creation happens from businesses already located here. During 2018-19, these retentions included Colliers International, which moved closer into the Downtown core; KBM/Hogue, which also stayed Downtown; and The Wood Connection, which was able to rebuild after a devastating fire. More recently, Lumentum (formerly JDS ETniphase) consolidated its San Jose and Milpitas operations into a new campus on Ridder Park Drive.

Several companies also doubled down on San Jose after extensive facilitation work by staff, including SK Hynix (which acquired a development parcel adjacent to its North San Jose facility for future expansion) and Broadcom, which fully occupied its new campus in North San Jose.

Unfortunately, not all businesses can stay in the city, because space options are not available, plans change, or costs rise. One example is 8x8, which announced it would occupy a new San Jose building in 2017, only to discover that the business was already outgrowing the space before the company had moved in. The company ended up recently relocating to Campbell. For this reason, it is important that the city maintains a robust supply of office spaces of various sizes. Other strategies to retain businesses despite pressures are discussed later in this memo

Investor/developer outreach

Investor interest in San Jose was strong in 2018-2019, with $4.5 billion in non-residential San Jose commercial real estate changing hands, according to Costar. This compares to roughly $4 billion in the previous year. These sales can benefit the City in several ways. Property assessments re-set at (usually) higher values, resulting in higher tax receipts. Investors often physically improve existing buildings after acquiring them, keeping them modern and competitive in the marketplace. Investment in development sites may lead to new projects breaking ground, creating new jobs.

During the 2018-19 period, staff worked with more than 50 developers/investors considering San Jose deals. In some cases, investors are looking for information on City processes and permitting; other times they are seeking to understand the city’s economic health to justify a big capital investment. In the last year, investors showed particular interest in well-located hotel development sites, downtown office assets, and select multifamily projects, though many continued to struggle with high construction costs. The latter category will grow as a share of the OED Team’s work with the arrival of Jerad Ferguson as our first Housing Catalyst Officer. In addition, as part of the new anti-commercial displacement initiative, staff has been meeting with bankers and lenders who are focused on the small-business ecosystem

What we are hearing

Trends that we have observed include:

  • Hardware and R&D-oriented companies accounted for much of the leasing activity, in contrast from Peninsula/San Francisco where social media/software tends to rule. This speaks to the strength of our building base for these types of uses, as well as labor pool.
  • Despite uncertainties over international trade, San Jose continued to be a focus for overseas investors, including from China.
  • Retail continues to evolve, and we have seen some positive momentum in re-leasing of vacant big-box space. A major highlight was the opening of Living Spaces at the former Sears at Westfield Oakridge. At the same time, we are seeing more interest from businesses that aren’t traditional retailers filling retail space.
  • Costs have risen for all types of construction and that’s put some projects on pause.
  • As the development pipeline and the economy grows, there’s rising concern about the potential for small-business displacement. City staff is currently working to identify potential strategies to mitigate this downside of growth.

Small business activities

Dhez Woodworth presented the small business activities of the City of San Jose, relating to the some 50,000 businesses that represent 155,000 jobs.  60% of our city’s small businesses are minority owned.

Our focus is to support the creation, growth, and retention of our small businesses, largely through BusinessOwnerSpace.com (BOS),  the City-led marketing collaborative, working with close to 30 partner organizations regionally.

This past fiscal year, BOS provided more than 14,000 small business services and monitored ever-changing small business issues. City and partner staff use formal research, focus groups, community meetings and events, as well as one-on-one conversations to keep up to date. These connections are particularly important in immigrant communities as 51 percent of small businesses are immigrant owned and 30 percent of these self-report that they have limited English skills. Staff works closely with agencies such as AnewAmerica, the Minority Business Development Agency, and the Small Business Development Center that collectively have the technical, linguistic, and cultural competencies necessary to meet the diverse needs of San Jose small business owners.

The Info Memo includes details on these business-focused City programs:

  • Small Biz Ally
  • City Procurement Program
  • Special programs e.g., the Eastside Grow food vendor cart program implemented in partnership with Veggielution
  • Events, workshops, partner events

OED’s work on policy initiatives included:

  • Small business anti-displacement strategies, being piloted in the Alum Rock area
  • Commercial Linkage Fee
  • Workforce Development
  • North San Jose
  • Monterey Corridor

More background and details on our International Programs and communications/marketing initiatives are available in the Info Memo.

Upcoming activities

BOS will be hosting the 9th Annual Summit on Entrepreneurship & Innovation. We will be continuing work on small business anti-displacement strategies, and on developing the City’s retail initiative, including the imminent onboarding of a Retail Business Development Officer. We will be supporting the manufacturing sector in San Jose, working on initiatives with Manufacturing: San Jose. Supporting our industrial sector will also include focusing on protection of and densification on our industrial lands, especially adjacent to transit. In terms of development, we will be facilitating major projects, such as Adobe’s fourth tower, Coleman Highline, and the expansion of Westfield Valley Fair.

A video of the CEDC presentation is viewable online, and the full report is downloadable.

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