OED Viewpoint – Business trends to watch

As part of OED’s annual Business Development Update presentation to the City Council’s Community & Economic Development Committee (CEDC) on Jan 28,  the staff memo included some forward-looking statements gathered through meetings, interviews, data analysis, roundtables, and various other forms of business outreach. Many of these are recurring themes in what’s now the ninth year of a national economic expansion, while others are new or increasingly pressing.  The City Council will review this report at an upcoming meeting, and the report includes these notes on trends to watch.

  • Project timelines are becoming longer – Businesses want to move quickly through the permitting process, but the entire building ecosystem – from contractors and architects, to engineers and City plan reviewers – is currently stretched very thin, extending timelines and increasing costs. OED staff advise companies and developers on available City resources and programs (such as Special Tenant Improvement), and those who access those resources early are better prepared for the process and generally complete the permitting process with less need to respond to extensive comments, and therefore experience shorter processing timelines. (Relevant City programs include STI, Small Business Ally, Commercial Express Permitting.)
  • Workforce availability is tight – Businesses of all sizes are reporting trouble finding qualified workers given the low unemployment rate. The City including work2future staff has been engaged with private sector, nonprofit and education partners to develop career pathways for adults, and older and younger youth with a focus on growth sectors including advanced manufacturing, healthcare, construction, information and communication technology, and finance.
  • Global trade impacts local business — The current trade climate in the U.S. and internationally is increasing interest in San José’s Foreign Trade Zone program. Staff meetings with several companies in recent months may lead to additional direct investment in San José.
  • Industrial real estate remains hot – After decades of little-to-no construction (and much demolition due to housing conversions), industrial real estate development has surged since 2015 in Silicon Valley. San José has seen about 1 million square feet of manufacturing/warehouse space built in the last three years, but developers continue to search for new opportunities to build modern industrial space, highlighting the importance of preserving industrial opportunities for future job growth.
  • Concerns about small business displacement are rising – There is a growing concern in some business districts that rising costs and current and future development will make it harder for small, independent business to remain in neighborhoods where they are rooted. Staff anticipates returning to Council in the fall of 2019 with an initial assessment and related strategy.
  • Business investment remains strong and is evolving: Small Business Administration-facilitated lending to San José businesses reached $93.3 million in calendar year 2017, the third-largest sum in the past 10 years. Also, in 2017 venture capital investors allocated close to $1 billion in San José startups. This shows San José is a major player on the business startup scene. But new companies are also accessing new funding platforms, such as peer-to-peer lending.
  • Retail continues to evolve: Brick-and-mortar retail is evolving as it faces competition from online sales, with some legacy retailers closing their doors. This evolution includes the rise of services, experiences, health/wellness, and entertainment uses. Staff has been working on three retail strategies – North San José, Citywide and Downtown – to better position the City moving forward.
  • Older workers are turning to entrepreneurship – Although the economy is generally thriving, older workers with significant knowledge about their own profession but limited business experience are an increasing percentage of those exploring entrepreneurship.  These individuals benefit from assistance in understanding the wider issues of business ownership.
  • Small Businesses are Struggling to Connect with Customers – Continued changes in consumer patterns and social and traditional media pose a challenge for smaller companies which must compete with more sophisticated larger businesses for customers and consumers’ attention.

The full staff report to CEDC can be viewed online — stay tuned for a blogpost on the actual presentation to the Committee.