It was January 1848 when James Marshall, a carpenter for settler and entrepreneur John Sutter, found gold while building Sutter’s sawmill on the South Fork of the American River. The discovery at a site about 45 miles northeast of modern-day downtown Sacramento quickly became a global event, which led to the creation of the state of California and altered the western expansion of the U.S.
By spring of 1849, one of the largest migrations in American history had begun. Within a year, California would become a state. The Gold Rush accelerated the country’s economic development and created boomtowns overnight. Some famous companies got their starts during this period. For instance, Henry Wells and William Fargo joined together to start a bank, Wells Fargo & Co. Levi Strauss began making pants out of canvas material for miners while the Pony Express (with its western terminus in Sacramento) was created to carry mail.
Today, the legacy of the California Gold Rush is everywhere, from the state motto of “Eureka” to the name of San Francisco’s NFL team, the 49ers. The state also has turned out to be a different kind of gold mine, growing to become the largest economy in the nation and one of the largest in the world. Its 2019 gross domestic product (GDP) of more than $3.1 trillion made California the fifth-largest economy on the planet (if it were its own country), according to Bloomberg.
California experienced a difficult 2020, with the state’s GDP falling by 2.8% from 2019 levels. The U.S. Census Bureau reported that California sustained a net population loss between July 2020 and July 2021 of about 262,000 people. Adding insult to injury, the population decline means that California will lose a congressional seat. Pundits chalk up the reasons for the exodus to job losses, high taxes and high costs of living. The state’s high number of COVID-19 deaths is cited as another factor.
The state saw its fortunes improve in 2021 with its GDP growing by 8.1% year over year in the second quarter alone. This expansion, however, slowed to an annualized growth rate of 2.9% in the third quarter.
Long described as the center of the entertainment industry — and known for its beaches, national parks and man-made attractions — California is one of the nation’s top tourist draws. But tourism spending has been deeply impacted by the pandemic. Travel-related spending was estimated at $65 billion in 2020, down 55% from the previous year. Air travel to the Golden State was down 64%. And total travel-related spending in California isn’t expected to return to pre-pandemic levels until 2024. The entertainment industry also continues to recover from a difficult stretch in which many productions were halted or postponed.
Other industries, however, remain strong. California’s technology sector continues to be a juggernaut, employing nearly 1.9 million people. Silicon Valley, located in the southern part of the Bay Area, is home to some of the world’s most innovative companies — including Apple, Facebook, Google, Hewlett Packard, Intel and Oracle.
The state’s aerospace and defense sector continues to thrive, too, generating an estimated $181 billion in economic impact each year. Yet another bright spot is California’s $49 billion agricultural sector, which includes nearly 70,000 farms and is estimated to generate another $100 billion per year in related economic activity. ●
Third-quarter 2021 was another tough time for the Los Angeles central business district (CBD) office-space sector as nearly 148,000 square feet of vacant space was returned to the market, according to Cushman & Wakefield. In addition, office occupiers gave up some 43,000 square feet of sublease space during these three months. The CBD vacancy rate reached 23.3%, but the average asking rent in the downtown core was up by 0.3% from the second quarter to $45.21 per square foot.
Despite the bad news, Cushman & Wakefield found a few bright spots in the CBD, including the Executive Office for Immigration Review recommitting to a 78,000-square-foot space in the City National Bank Building. InStride, a workforce education company, leased another 23,000 square feet at The Bloc.
Although progress was slow, Cushman & Wakefield maintained that the leasing pace was roughly on par with the previous quarter. Through the first nine months of 2021, tenants leased nearly 338,000 square feet of CBD office space, a 30% year-over-year decrease and considerably below the levels of activity in pre-pandemic days.
Focus: Entertainment industry
It’s estimated that one in 10 workers in California is employed in what state officials call the “culture industry.” This includes the visual arts of film and television, as well as music, fashion, amusement parks, publishing and more. So, it’s no surprise that the annual economic impact of this massive industry on the state weighs in at about $405 billion per year.
The crown jewels of this glitz-and-glamour sector are the state’s amusement parks, including the world-famous Disneyland Resort, Universal Studios Hollywood and Knotts Berry Farm, to name a few. For movie buffs, there’s nothing like taking a studio tour. Although maybe not as grand and numerous as they once were, these cathedrals to cinema remain as major tourist draws. Leading this pack are the tours at Warner Bros. and Paramount Pictures.
Many television programs are filmed in the Los Angeles area. Anyone can order free tickets online to shows such as “The Ellen DeGeneres Show,” “Jimmy Kimmel Live!” “Jeopardy!” “The Price Is Right” and “Wheel of Fortune.”
What the locals say
“You have to look at specific asset classes to get a sense of commercial real estate in Los Angeles. The market for industrial properties, for example, is extremely hot and has a vacancy rate under 1%. That market will stay strong in 2022. I think the apartment market will remain strong and hotels are starting to come back, even though business travel won’t be as strong as in the past. As for office space, the smaller owner-occupied buildings will do well. It solves so many problems. I think retail is going to be the weakest sector of them all. Those doing well are going to offer customers more of an experience while shopping.”
Peter Steigleder
Chief operations officer
Fidelity Mortgage Lenders Inc.
3 Cities to Watch
San Diego
California’s second most-populous city with nearly 1.4 million residents, San Diego is famous for its warm weather and beautiful beaches. The city has been named to numerous “Best Places” lists over the past decade, including being called the “Best Place to Launch a Startup” and the No. 2 “Most Inventive City in the World” by Forbes. San Diego has a diverse business community that is home to semiconductor maker Qualcomm, biotechnology company CSL and restaurant company Jack in the Box Inc.
San Jose
As the fast-growing hub of Silicon Valley, San Jose has become one of the nation’s technology centers. The city now has more than 1 million residents while its unemployment rate of 4.2% in October 2021 was down from 7.3% a year earlier. According to Fitch Ratings, the San Jose metro area has nearly 30% of its workforce directly employed in the high-tech and manufacturing sectors. Some of the major companies headquartered in the city are Cisco Systems, Western Digital Corp. and PayPal.
Redding
The largest city (94,000 residents) in the Shasta Cascade region of north-central California, Redding is known for its proximity to outdoors recreation, including mountain climbing, skiing and fishing. It is an economic, educational and health care center for the region. Shasta College, Mercy Medical Center and the Shasta Regional Medical Center are three of the area’s largest employers. The city also is home to the headquarters of the Black Bear Diner Corp., which has some 140 locations in 14 states.
Sources: Built in San Francisco; CBS News; City of San Diego; CityTownInfo.com; Cushman & Wakefield; Fitch Ratings; History.com; MomsLA.com; National Park Service; NBC News; Norwich University; Office of the Governor of California; State of California; Tripadvisor; TripSavvy; Visit California; WorldAtlas.com; Zippia
