But that may be changing as a report by the Jones Lang LaSalle commercial brokerage suggests.
Among 37 metro areas analyzed in the latest “Technology Office Outlook” report, San Diego lies in what’s called the “sweet spot” of areas with high startup opportunity and low cost.
San Francisco ranks first in terms of real estate, salary levels, and business and lifestyle conditions, while San Diego is halfway down the list at No. 18, just below Boston and Portland, Ore., and just above Silicon Valley and Los Angeles.
But a few deals suggest that San Diego is holding its own, and while it may never equal Silicon Valley’s size and power, it may outpace Los Angeles’ “Silicon Beach” where companies complain of endless traffic snarls.
(A reminder to LA boosters: The term actually originated in San Diego in 1984 with the founding of Silicon Beach Software, now owned by Adobe Systems.)
Fitbit, the San Francisco manufacturer of wearable fitness devices, is making final plans to move to a newly established, 17,000-square-foot research-and-development office in Rancho Bernardo. Not only does the company capitalize on San Diego’s outdoors sports reputation but it also plugs into San Diego’s computer science and software talent.
"San Diego is a recognized center of engineering excellence,” a Fitbit spokeswoman said. “We’re looking to build out a large presence and expand our team, with the goal of replicating our culture and mission to make the world a healthier, more active place.”
Another out-of-town tech company, GoPro recently expanded its local presence into the Make project in Carlsbad, a former flower mart that the Cruzan development company is repurposing. Known for its wearable cameras and active sports video postings, GoPro was founded by a UC San Diego alumnus and remains based in San Mateo.
An even bigger signal comes from JLL’s listing of San Diego-based Lumedyne Technologies as looking for larger space. The sensor company was quietly bought by Google last year, which several news reports said was likely tied to Google’s driverless car initiative.
“Once Google lands, I see them opening up the floodgates to some degree,” said Cushman & Wakefield broker Brett Ward. “They’re truly a dynamic company and when other companies see them making plays, that brings other companies.”
Ward is watching these trends closely because his firm, located both here and in San Francisco, is scouting high-tech tenants for Manchester Pacific Gateway, developer Doug Manchester’s 3-million-square-foot project at the Navy Broadway Complex site on the downtown waterfront.
“If I was in San Francisco and somebody said do you want to move to San Diego, my hand would go up in a heartbeat,” Ward said.
His San Francisco colleague, J.D. Lumpkin, said he’s compiling a list of dozens of potential Bay Area companies that might consider expanding to San Diego. Typically, such expansions take place in Austin, Denver and other out-of-state tech hubs, he said, and the pitch will aim to change that mindset.
“We think San Diego will still stack up very well in a lot of the fundamentals,” Lumpkin said.
If luring and retaining talent is an issue, he said Bay Area millennials would appreciate downtown San Diego’s vibrancy, as well as a lower cost of living and less traffic.
“They’ve got real struggles here (in San Francisco) and most of it has to do with talent acquisition,” Lumpkin said.
By some measures, San Diego looks like a bargain compared with the city by the (other) Bay, according to the JLL report:
- San Diego’s average real estate and tech wage costs total $112,189 per person; East Bay-Oakland’s is $127,157; San Francisco, $187,247; Silicon Valley, $219,200; and the San Francisco Peninsula, $241,493.
- San Diego’s average monthly apartment rent is $1,575, half of San Francisco’s.
- The commercial office vacancy rate is 14.5 percent in San Diego and the 12-month rent growth is 7.5 percent. San Francisco’s market is much tighter with an 8.4 percent vacancy rate that has led to a 12.6 percent rent growth rate, making it difficult and very expensive for companies to grow and expand.
But there’s only one Fortune 500 tech company in San Diego, Qualcomm, leaving many tech startups no choice but to move north if they want to scale up big.
Besides economic factors, JLL looked at market “dynamism,” based on building density, transit, walkability, real estate mix and existing “creative clusters.” San Diego rated only three out of 14 points, far below 12 for San Francisco.
Surprisingly LA received 10 points, based on its supposedly better walkability, more mixed use and transit in its downtown and Westside tech hubs, said Julia Georgules, JLL research director for the U.S. office market.
But Georgules said market dynamism counted for only 5 percent of the overall market score for the metros analyzed. San Francisco’s score was 93.4 out of 100, compared with San Diego’s 71.9 and Los Angeles’, 71.8.
San Diego startups fight the flight to Frisco by offering Google-like inducements, such as free food, dogs in the office, in-office massages and fitness programs, flexible work hours and unlimited vacation time.
One example is iboss Cybersecurity, founded in 2003 by twin brothers who grew up in Los Angeles but stayed in San Diego after graduating from UC San Diego and San Diego State University.
The 100-member staff recently moved to a former SAIC data center building off Genesee Avenue. The inside’s warren of little private offices was gutted and replaced by an open floor plan, suitable for dog roaming, (one employee so far has set up an aquarium on his desk), a well-stocked kitchen, indoor shuffleboard and a Foosball tablegame. Coming soon: an outdoor TGIF bar, amphitheater and fire pit.
The highlight is an adult-sized orange slide -- referred to as the company’s “green elevator” -- connecting the two floors.
“It’s a little wobbly but I can do it,” said Eric Soliz, 38, a principal software engineer.
Other employees said they like the open feeling, movable standup desks and industrial look of exposed heating and air conditioning ducts and roughcut lumber and unfinished surfaces -- all designed by Gensler architects to lend a “coolness” factor to the work environment.
Planned next year is an accelerator division on the ground floor, where employees will be freed to pursue initiatives that could become new iboss profit centers.
“We’re going to make it Google San Diego,” iboss President Peter Martini said. “We’re going to bring the Bay Area here.”
However, he said San Diego does have work to do to make the city more business friendly, especially in the building-permit department. For example, he said city inspectors first nixed the slide, just weeks before the company was scheduled to move in.
“I’ve got to hand it to the mayor,” he said. “He stepped in, got everybody to collaborate and work together and it was signed off in seven days. We were shocked.”
But mayors and business leaders can only do so much to lure tech giants away from the Bay Area, especially if they can’t dangle lucrative tax incentives available in other states or introduce them to well-funded venture capitalists.
With $12.6 billion in VC funding in the 12 months ending in mid-2015, San Francisco remains the go-to place for investors, always on the prowl for the next big thing. San Diego’s total was only $279.2 million.
That’s why San Diego native James Heller, CEO and co-founder of Wrapify, said he left his startup advertising-on-cars company in San Diego but relocated himself to San Francisco.
“If you’re building a tech company, raising capital in San Diego is a very, very difficult thing to do because there’s not much of it,” Heller said.
Mark Cafferty, president and CEO of the San Diego Regional Economic Development Corp., quibbled with some of JLL’s tech office market findings, but acknowledged the county faces stiff competition from lower-cost cities and the giants in Silicon Valley.
But with a strong base in biotech and cybersecurity, San Diego can expect to grow its nascent cluster of tech startups, Cafferty said.
“We’re still a place where people see important research and development and breakthroughs,” he said.
©2015 The San Diego Union-Tribune Distributed by Tribune Content Agency, LLC.
