Downtown San Diego

Downtown San Diego has a rich and storied history that extends back far before the first Europeans ever ended up on its shores. The area was settled for its natural beauty as well as its importance as a strategic military outpost. The initial building blocks of strategic positioning and captivating aesthetic continue to drive Downtown San Diego’s culture and economy. Downtown San Diegans are more likely to be linked directly to the region’s Innovation Economy, are younger on average, and tend to earn more at their jobs than residents in other parts of the region. The military still holds strong ties to the private sector, creating a symbiotic ecosystem that has brought recognition to the region as a national center for innovation, combined with an environment that lends itself to active and social lifestyles.

• Downtown's residents are young, urban professionals primarily working in innovation industries and earning higher-than-average wages. The vibrancy of urban living is what they like about living Downtown and they would even prefer to work there if given the choice, though the cost of living remains higher in Downtown than the County at large.
• Downtown's over concentration of the most in-demand talent, combined with an increasing supply of commercial real estate, present timely opportunities for high growth companies – particularly Life Science and Technology companies securing record-breaking investment – who are seeking top talent surrounded by the amenities they desire.
• Downtown's legacy industry clusters are more vulnerable to economic downturns, making diversification advantageous. Job losses during 2020 erased the gains of the previous four years.
• Downtown is widely viewed as a hub for arts and culture, as well as a top destination for professional networking and gathering.

The five Census Tracts that make up Downtown San Diego are home to more than 37,000 residents and draw several distinctions from the broader San Diego region. Downtown’s population has grown more than three times as fast as the region overall, up 36.7% from 2010 to 2019. It is largely a community of young, urban professionals who are more likely to walk or use public transit to get around than the rest of San Diego County. In fact, a survey of Downtown residents found that ‘walkability’ is the most cited reason for why they like living Downtown. Most residents say they enjoy living Downtown because of its central location, urban lifestyle, variety of dining options, and access to recreational amenities.

While San Diego County has grown into a majority-minority region, meaning that Whites make up less than half of the population, 56 percent of Downtown’s residents are White. Blacks make up 9.3 percent of the population in Downtown, double the 4.7 percent across the county. This results in smaller shares of the population that are Hispanics, Asians, and Native American, making Downtown somewhat less diverse than the surrounding region. Downtown is also home to a younger demographic. Three in five are between the ages of 25 and 54, compared to 42 percent for the County. Furthermore, the share of 25- to 34-year-olds in Downtown stands at 31 percent, nearly double the 16.5 percent seen across the region.

The significantly larger share of younger residents has implications for household formation, with 72 percent of Downtown’s households being non-family units. This is a departure from the 33 percent seen countywide. Both these dynamics make sense, as younger people are more likely to bunk with roommates as they establish a foothold in their careers. Naturally, most of these residents say they enjoy living Downtown because of its central location, urban lifestyle, variety of dining options, and access to recreational amenities.

Earnings for working households tend to be higher in Downtown than the rest of San Diego County. Downtown households with earnings from work pulled in an average of $116,137 in 2019, 11 percent higher than San Diego County as a whole. However, even though the average earnings for Downtown residents are significantly higher than the countywide average, average total household income (which includes items such as public assistance and retirement income) is lower.

This is because 24.1 percent of Downtown households bring in less than $25,000 per year – a much higher proportion than the County at large (14.2 percent). Whereas, 12.5 percent of Downtown households earn $200,000 or more per year, which is only marginally higher than San Diego County (11.7 percent). This has implications for housing affordability.

Important to consider with this finding, the  2021Annual Housing Report  conducted by the City of San Diego showed Downtown housed four times as many affordable housing units under construction in the last decade (2,417 units) than the second highest community plan (Mission Valley – 547 units.) Compounded with most of the City’s resources for unsheltered residents, Downtown is home to a dynamic span of incomes.

While San Diego’s already high cost of living has continued to rise, Downtown has historically had measurably higher home values and rents. However, the gap has narrowed in recent years. Yet, the distribution of income provides a view into the share of households that are housing-cost burdened. In San Diego County, a whopping 63 percent of households pay out at least 30 percent of their income for housing, higher than the California average and far above the national average. Downtown, this number rises to 67 percent. It's no surprise then that 44 percent of those working Downtown cite the cost of housing as a reason against wanting to live in Downtown – more than any other. The high cost of housing in Downtown is an even greater disincentive to those not currently living or working there, with more than half of those surveyed indicating it as a reason against wanting to live in Downtown.

Downtown enjoys a much higher labor force participation rate than the rest of the region. More than 41 percent of Downtown’s 24,000 working residents are employed in occupations within Management, Business, Science, or the Arts, which is around five percentage points greater than the rest of San Diego County.

The fastest growing occupation for Downtown working residents within Management, Business, Science, or the Arts are Life Scientists. The number of Downtown residents working as Life Scientists has more than tripled over the past two decades, compared to a 70 percent increase in the rest of San Diego County. In fact, the growth rate of Downtown working residents has outpaced the rest of the county in 31 of 32 of the occupations within Management, Business, Science, or the Arts. However, the pace of that growth has slowed significantly during the last five years. While the growth rate of resident workers in these occupations Downtown outpaced that of the rest of San Diego County between 2010 and 2015 by nearly seven percentage points, Downtown has only added 359 of the more than 67,000 new resident workers holding Management, Business, Science, or Arts occupations since then.

Unpacking these major occupational groups, the top occupation among Downtown’s working residents is Business Operations Specialists. This includes positions such as Market Research Analysts, Marketing Specialists, and Project Management Specialists. The number of these professionals residing Downtown has grown by 3.8 percent annually since 2010, compared to 4.4 percent in the rest of San Diego County. In 2019, Downtown had an undersupply of Business Operations Specialists, with 1,374 resident workers Downtown and more than 4,000 such jobs located Downtown.

While the talent that lives in Downtown is concentrated in high-paying, knowledge-intensive work, the jobs that are located Downtown are primarily concentrated in service occupations that are generally lower-paying. In fact, 7 of the top 10 pay occupations with jobs Downtown pay median earnings below $50,000. This helps explain the some of the affordability challenges and commuter dynamics seen in Downtown.

A “better commute” is by far the most attractive reason for taking a job Downtown. Not surprisingly, a better commute is also the reason 61 percent of those that do not live or work Downtown say they would want to work Downtown.

Conversely, the cost and availability of parking is the biggest detriment to working Downtown – both for those already doing so and those working elsewhere.

Downtown has an over-concentration of high-skilled talent residing within its borders. These are predominantly young professionals with high paying jobs that value walkability and access to lifestyle amenities. The ability to build more complete communities depends on Downtown’s ability to attract people to both live and work in the market. Cultivating employers with larger shares of these workers could bring the jobs that Downtown residents want into their own urban ‘backyard’. In 2021, the region experienced its greatest year in terms venture capital funding driven by Life Sciences and Technology companies – both of which are looking to expand their footprint and add jobs rapidly.

Between 2015 and 2019, job growth Downtown exceeded that of the overall region by nearly one full percentage point. This was driven by rapid growth in Transportation and Warehousing, which has been found to have above average utilization of technologies such as  Artificial Intelligence and Machine Learning . Additionally, Transportation Manufacturing that directly support the Navy’s large presence in the region has also grown steadily. In fact, aircraft and ship builders make up 94 percent of the local Transportation Manufacturing workforce, which is 2.5 times the U.S. average.

When we look at the concentration of industry jobs relative to the population size, compared to the national average (what is known as a location quotient, or LQ), Downtown has a high concentration of jobs tied to Leisure and Hospitality, such as Arts, Entertainment, and Recreation, as well as Accommodation and Food Services. Downtown has double the average concentration of Accommodation and Food Service jobs and more than four times the average concentration of Arts, Entertainment, and Recreation jobs. These tend to be lower paying and were the hardest hit by the pandemic. It also helps explain Downtown’s commuter patterns with lower-income earners commuting into Downtown for work and higher-income earners commuting out. Overall, earnings per job Downtown ($77,300) are slightly below the regional average ($79,000).

The high concentration of lower-wage jobs means Downtown underperforms in terms of its contributions to the regional economy. In 2020, Downtown provided 70,669 jobs (4.2% of region’s total) but only added $9.8 billion in value to regional economy (4.0% of gross regional product).

The economic impact of the pandemic was far more severe for Downtown jobs than to the region. In 2020, Downtown lost 9,839 jobs – completely undoing the cumulative job growth experienced during the preceding four years. Where the county ended 2020 basically flat in terms of job growth compared to 2015, up just 0.4 percent, Downtown finished 2020 with 4.8 percent fewer jobs than it had in 2015.

There are 127 buildings with commercial office real estate in Downtown San Diego, totaling 11.8 million square feet of existing office space. Although the COVID pandemic has presented significant economic challenges, investment in new commercial office space remains strong. In fact, two new buildings offering office space were delivered in 2021, adding more than 325,000 square feet of inventory to the Downtown area.

From 2015 to 2019, vacancy rates for office space hovered around 15 percent. From Q1 2020 to Q4 2021, vacancy rates have nearly doubled to 28.4 percent, as more new office space came online and businesses shifted to a remote work environment. Office vacancies remain higher Downtown compared to the rest of the county.

In part, this reflects the relatively lower availability of office-using jobs. However, office space Downtown comes at a premium compared to other locations in San Diego County. Asking rates Downtown are about $3.35 per square foot, compared to $3.12 for the rest of the county. However, these asking prices have trended downward in 2021 as remote work and investment in commercial real estate has expanded supply of office space in Downtown.  

As of Q4 2021, there are six properties under construction in the Downtown area that will add more than 2.2 million more square feet of office space to the market. In addition to the properties under construction, there are currently 4 commercial building proposals Downtown which would add over 780,000 square feet of commercial office space to the area when completed.

Although the backdrop of remote work during the pandemic does not seem to warrant more office space, a December 2021 survey of San Diego businesses indicated that demand for commercial real estate is likely to ramp up in the next six to 12 months, with larger companies–those with more than 250 employees–reporting a greater desire to take up commercial space than smaller companies. This presents an opportunity to attract these large companies to spaces in the Downtown area. While employees and employers alike have reported the desire to maintain aspects of remote work, most are likely to return to a hybrid work schedule. 

While Downtown does not have the same concentration of Life Sciences companies as other areas in San Diego, such as the UTC area, it is increasingly becoming a more attractive place for businesses that operate in this innovation industry. Leasing prices for laboratory space Downtown are about 14.4 percent higher than the rest of the county. Currently, there are two properties totaling 253,000 square feet of laboratory space in Downtown San Diego.

This space remains largely unused, with 70 percent vacant. While this is significantly higher than 45.1 percent vacancy rate for the rest of San Diego County, it has not deterred new investment into commercial laboratory space in Downtown.

Two projects totaling 377,000 square feet of commercial laboratory space are proposed or under construction in the Downtown area. There is already a surplus of Downtown’s residents working in the Life Sciences that businesses could source to fill positions. Even more promising, more than $5 billion in venture capital came into San Diego life science companies in 2021. This is fueling expansion plans by many companies and more than 20,000 unique job postings during the last 12 months. Downtown is highly attractive place to live and work for these types of workers, which should help convince growing life sciences companies to locate where their workforce wants to be.

Downtown is home to many attractions for residents as well as those who visit from outside the area. According to a survey of San Diegans who live and visit the Downtown area, Petco Park, Seaport Village, and Little Italy are the top three attractions. Downtown also has a reputation as the premier location for nightlife activities, with the Gaslamp District attracting visitors from across the county and outside the region. Yet, those living in Downtown are more likely to enjoy these amenities. In fact, 73 percent of Downtown residents say they dine out at least once or twice per week, compared to 55 percent of those who live outside of the Downtown area.

Even more than food and nightlife, Downtown is widely recognized as the premier destination for arts and cultural events. Nearly half (47 percent) of those who live outside the Downtown area visit Downtown for activities such as concerts, museums, and operas. Specifically, San Diegans most often frequent musical events at the myriad concert venues that Downtown has to offer. House of Blues has operated in San Diego since 2015, attracting visitors from across the county. Located on Bayfront property in Downtown San Diego, the Rady Shell at Jacob’s Park opened in 2021 with a capacity of up to 10,000 and promises to be a driver of Downtown’s renaissance. While the venue is a prime location for classical performances due to its superior sound system, The Shell will strive to reflect Downtown’s cultural diversity with the performers that grace its stage.

More than just fun and games, professionals are drawn to Downtown for networking events that are offered in the area. People from all over San Diego report Downtown as the top locale for attending association and professional group gatherings. Not only does Downtown boast one of the most renowned convention centers in the United States, but the proximity to dining and nightlife allows for the perfect mix of business and pleasure.

While Downtown attracts visitors from San Diego, it’s international presence should not be understated. The pandemic had significant impacts on out of region and international travel to Downtown. Although business travel is still lower than pre-pandemic levels, leisure tourism is returning to normal as seen in hotel occupancy rates for summer months nearing 2019 levels. Furthermore, employers report that they expect to be back to about 50 percent of pre-pandemic business travel by 2022, and fully back to normal in 2023.

Every Downtown area has a unique character, exhibiting qualities that set it apart from the region that houses it and other metros across the globe. Downtown San Diego’s bustling nightlife, refined arts and culture scene, and professional networking possibilities are what make it "America’s Finest City." These attractions, as well as Downtown’s walkability and robust public transit network, are a beacon for working professionals engaged in a wide swath of occupations in knowledge-intensive, innovation industries. Downtown’s oversupply of these young professionals, combined with an increasing supply of commercial real estate, present timely opportunities for high growth companies seeking top talent surrounded by the amenities they desire.