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San Diego Is on the Rise With Help From Developers, Tech

The region's real estate boom, diverse industries defy a slumping state economy

January 02, 2003|Marla Dickerson | Times Staff Writer

San Diego got pounded during the early-1990s recession. But the hammering lately is the sound of new construction.

While the state and national economies stagnate, California's second-largest city is experiencing a residential renaissance. Developers have completed more than 2,000 condos, lofts and apartments downtown over the last three years and are planning 9,000 more in the next five years.

Housing is hot in the rest of the county as well, with the median price for existing single-family homes up 28% in November from the previous year -- the biggest increase in California, according to property information service DataQuick.

But it's not just real estate that has made San Diego a standout in a slumping California economy.

The county boasts one of the state's lowest unemployment rates, at 4.1%. Its tourism and technology sectors have held up better than those in other parts of the state. And although its employment growth has slowed markedly since the height of the economic boom, San Diego County is one of the few regions in California that is still adding jobs.

Payroll employment increased by 22,400, or 1.8%, through the first 11 months of 2002, with most of that growth coming in services, according to the state Employment Development Department. By comparison, neighboring Orange County lost 4,000 jobs over the same period. Among major regions in California, only the Riverside-San Bernardino area did better, with 2.4% employment growth.

A laggard during the last recession, San Diego is "really one of the bright spots" this time around, said Cheryl Mason, an analyst with the state employment agency. "It's a pretty diversified economy now."

What a difference a decade makes.

Like Los Angeles, San Diego saw its aerospace-dependent economy crash in the early '90s when the federal government whacked defense spending. More than 20,000 well-paying aerospace jobs vanished from the San Diego area within a few years, according to University of San Diego economist Alan Gin.

But unlike L.A. County, which still hasn't regained all the jobs lost during that period, San Diego more than made up for its defense losses through growth in high-tech industries, including biotechnology, pharmaceuticals, software and computer services.

A federal Small Business Administration study of San Diego's high-tech makeover points to a variety of factors behind its success. For starters, the region's entrepreneurs have demonstrated an ability to find commercial uses for defense technology.

The founders of San Diego-based wireless company Qualcomm Inc., for example, got their start doing communications work for the military. Composite materials developed for the aerospace industry helped propel the region's sporting goods makers, including Carlsbad-based club maker Callaway Golf Co.

San Diego's research and academic institutions also have nurtured entrepreneurial activity. In 1979, two UC San Diego professors started Hybritech Inc., a medical-test manufacturer credited with sparking the biotech industry in the area.

But even as some of the transformation was organic, much was deliberate. Organizations such as the San Diego Regional Economic Development Corp. and a UCSD program called Connect rallied the community behind the high-tech vision and brought key players together to see it through.

"They got everyone focused on high-wage clusters they felt would be attractive to San Diego," Gin said. "To a large extent, it worked."

To be sure, San Diego's high-tech sector has been rocked by the same collapse in business spending that upended Silicon Valley and tipped the nation into recession in early 2001.

The county's telecom workforce has declined as companies such as Qualcomm and Ericsson have shed employees in the face of slumping demand. Software maker Peregrine Systems Inc., the computer arm of Sony and semiconductor firms Mindspeed Technologies, LSI Logic Corp. and STMicroelectronics Inc. also have cut their San Diego payrolls, reflecting the broad sweep of the high-tech downturn.

Nor have San Diego's biotech firms been immune to downsizing as venture funding has ebbed.

"We're starting to feel the slowdown," said Rich Mejia, head of Ernst & Young's regional heath science practice. "There are too many firms competing for the same research dollars. We're bound to see some consolidation in the next 12 to 24 months."

Still, experts say San Diego's diverse cluster of high-tech industries and lack of huge corporate headquarters have insulated it from the kind of deep downturn being experienced in the Bay Area.

"San Diego wasn't nearly so concentrated in the Internet and e-commerce as Silicon Valley and San Francisco were when the investment bubble popped," said Steve Cochrane, director of regional economics at Economy.com. "Areas such as biotech have been much more steady."

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