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California: Still Shining - The Golden State Keeps Growing

Oct/Nov 07
California's knowledge-based economy, skilled talent pool, business-friendly legislation and sought-after lifestyle make the Golden State worth a second look through new lenses: 
• California is the best state for biotech companies - it boasts 40 percent of the nation's life science firms and employs the greatest number of biotech workers, according to the Public Policy Institute of California
• California leads the nation in overall job creation with 575,000 jobs added over the past three years, according to the Office of Governor Arnold Schwarzenegger.
• California attracts more venture capital and research and development funding dollars than any other state (source: VentureOne).
• California, reports the National Science Foundation, offers more than $650 million in tax incentives annually for research-intensive industries like biotech.

And there's more to come. Schwarzenegger and California's state legislature are setting out to rebuild and expand the infrastructure for the future. In his 2005 State-of-the-State address, Schwarzenegger laid out his Strategic Growth Plan, a 10-year, multibillion-dollar infrastructure improvement blueprint. With an eye toward the state's continued growth long after he leaves office, Schwarzenegger's comprehensive plan has allocated funds for roads, highways, bridges, transit, ports, education and schools, levees, and affordable housing.

"California may be more expensive than other states, but the benefits of doing business here outweigh the costs," says Marcella Harrison, vice president of GVA Kidder Matthews, a commercial real estate advisory in San Francisco. "Our transportation infrastructure is strong, our labor pool is extremely sophisticated, and our governor is pro-business."

Capital Growth
California's capital is leading the charge with one of the strongest economies in the Golden State. Sacramento already earned the moniker "Little Silicon Valley" with its cluster of Fortune 500 tech companies. Now the state is now vying for yet another title - biotechnology hub. Indeed, diversification is becoming a key element of Sacramento's industrial economy.

"BayBio is very bullish on the life sciences growth prospects for the Sacramento Region," says Matt Gardner, president of BayBio, Northern California's life sciences association, which opened a Sacramento office in March 2007. "With investments being made by UC Davis and rapid growth in company startup activity, there is a lot to look forward to - this is only a beginning."

The capital city is also an emerging hub for sustainable energy research, policy development, and commerce. Dutch-based Ecostream chose West Sacramento for its first American location and U.S. headquarters in January. The company delivers ready-to-use sustainable energy systems, with a focus on solar energy. That same month, Pacific Ethanol, a producer of ethanol as a clean fuel alternative, selected Sacramento for its national headquarters.

Central Focus
Call centers are calling on Central California, along with distribution, warehousing, logistics and back office centers. But the region is breaking out of its distribution roots by attracting high-tech service companies and biotechnology firms.

Like other regions of California, the heart of the state is diversifying its industrial base. Kyoho Machine Works, a subsidiary of Toyota Motor Corp., is building a $73 million plant in Stockton on a 37-acre site to make auto and truck body parts. And Tejon Industrial Complex, a new warehouse seeking foreign-trade zone status, will beef up the region's already healthy logistics base.

Meanwhile, solar power systems designer and installer Akeena Solar of Los Gatos opened another office in Manteca. "Manteca is strategically located, linking the San Francisco Bay Area to California's Central Valley," says Barry Cinnamon, the company's chief executive officer. "The hot climate combined with high energy prices and the availability of new homes makes Manteca an ideal place for solar power."

What many don't yet realize, though, is there are about 53,000 high-tech workers in the Valley, according to the American Electronics Association. What's more, the growth of the health and biotech industries spurred the development of Clovis, a new tech park. And Merced and Tulare Counties are getting in on the medical device manufacturing with the arrival of Sanitec and JIT Manufacturing.

East Bay Expanding
The health and technology industries are also emerging in the East Bay. In fact, East Bay high-tech employment hit an all-time high this summer, according to economist Ryan Ratcliff's East Bay Economic Outlook. And the Employment Development Department projects the local healthcare industry will expand over the next five years.

Meanwhile, a diverse array of manufacturers is still opting for East Bay - and international trade is growing. The Bay Area World Trade Center is planning a new, larger location with space for trade and logistics companies. All the while, the 500,000-square-foot CarrAmerica Corporate Center expansion in Pleasanton is adding new office space as a wave of companies look for less expensive alternatives to nearby San Francisco.

There's also big news in Oakland, with a $300 million expansion project at the Oakland International Airport. The expansion includes terminal redesigns, new roads and signs, and new baggage claim areas. The move caters to the East Bay's growing business community. Business travelers make up about half the traffic to the airport. The city saw nearly 3,200 businesses move into the area in 2006 alone, with leading sectors including business services, health care services, transportation, food processing, light manufacturing, government, arts, culture and entertainment.


Bio, Bridges, and Buildings
According to the Milken Institute, San Diego remains the top biotech region in the country - and it plans to hold that distinction. The area continues to draw new companies, like Pharmatek Laboratories, a pharmaceutical chemistry development corporation.

San Diego State University (SDSU) and Gallup University are tackling the region's growing work force needs with a new M.B.A. for Executives in Life Sciences. "With this program, our goal is to produce leaders who have an in-depth understanding of the best practices that can be used in accelerating product development and market launch of new biomedical and life science products that are critical to the improvement of health and key to the growth of the global biotech industry," says Gail Naughton, Ph.D., dean of the College of Business Administration at SDSU.

Beyond educational infrastructure, San Diego is undertaking critical transportation infrastructure fixes. State government awarded the region $451.5 million to fund the projects, including the 10-mile express Otay River Bridge that connects South Bay to Otay Mesa and the international border. "The Otay River Bridge is more than just an engineering feat; it's an international gateway," says South Bay Expressway CEO Greg Hulsizer. "The bridge will improve regional mobility by filling a gap in San Diego's freeway system and will provide a new, convenient connection for businesses across eastern Chula Vista and Otay Mesa to employment centers across the border."

San Diego is also beefing up its office space. The Ryan Companies, a commercial real estate developer, broke ground on RiverView at Santee in East San Diego in December 2006. It's a 1.9 million-square-foot, master-planned mixed-use campus designed for technology, R&D, and professional offices. "We can attract corporate users at 20 percent below market rents and a large employment base in the surrounding area," says Matt Reid, vice president of development for Ryan's West Division. "I think the land prices are going to drop in the Southern California area and opportunistic companies will begin locating here."

Southern Development
Los Angeles is known worldwide as a Hollywood hangout, but the region's manufacturing jobs are on the rise in 2006. According to Manufacturing in Southern California, a report issued by the Los Angeles Economic Development Corporation (LAEDC), Los Angeles is the third-largest manufacturing "state," behind the entire state of California and Texas.

"Orange and Ventura Counties, and the Riverside-San Bernardino area all added factory jobs during 2006, which was counter to the national trend," says LAEDC Chief Economist Jack Kyser. "What are the implications of this large factory work force? This sector represents a huge market for all types of suppliers and means that local manufacturers can find inputs right in their backyard."

The Inland Empire - San Bernardino County and Riverside County - and Ontario markets are benefiting from a bustling distribution hub. There's plenty of undeveloped land there at favorable rates compared to adjacent coastal communities. For its part, San Bernardino County has three international airports and nearby access to the ports of Long Beach and Los Angeles. More industrial land is under development there than in Los Angeles, Orange, and San Diego Counties combined.

One developer, Hillwood Investment Properties, plans to complete a total of 12 industrial buildings totaling 5.7 million square feet in four different developments in the Inland Empire by the end of 2008. "With the completion of the Interstate 210 extension and increased imports from Asia arriving at the Southern California ports, this is a perfect time to add space in the Inland Empire," says John Magness, senior vice president of Hillwood Investment Properties. "Hillwood has close to 1,000 developable acres in Southern California and is aggressively seeking other land opportunities in the area."

The City of Hesperia is challenging companies to think outside the basin - the Los Angeles basin, that is. Located 90 miles northeast of Los Angeles and 35 miles north of San Bernardino, Hesperia is attracting distribution, manufacturing and commercial enterprises with its productive, low-cost labor force. Developers receive fast-track service on permitting, and companies looking to set up shop quickly will find plenty of existing industrial and commercially zoned properties.

When you dig beneath the headlines that magnify the challenges, California's story is one of growth and opportunity. "California is still growing where there is available property," says Thomas Loo, co-managing shareholder in the Los Angeles office of Greenberg Traurig. "You see businesses locating inland, filling in around large metropolitan areas now. California is one of the largest economies in the world because of the climate, the melting pot of talent and the innovation."

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