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Bullish on the East Bay

The inside story on what the future holds for our economy


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Anyone who works, runs a business, or owns a home in the East Bay has to wonder how our local economy is doing. Look around, and you see chic boutiques, fancy restaurants, and hip businesses popping up all over. But read the newspapers, and one day a recession is right around the corner, while the next day we’re doing just fine.

Which future is ours?
To answer that question, Diablo pored through economic reports and interviewed economists, government leaders, business owners, and worker bees. The consensus is overwhelmingly optimistic. Sure, some experts fear that real estate will tank and take us with it. But most see a flush East Bay future. Here’s why. 

A Diversified Portfolio
The East Bay’s economy is resilient because we don’t rely on any one industry for jobs or wealth. Our economy is like a well-rounded stock portfolio, which means that if any one sector takes a hit, like technology did four years ago, our economy isn’t going to sink.

We’ve got traditional workhorses like oil refineries, and we have Ph.D.s toiling away in quiet office parks or stylishly converted warehouses researching new technologies that could transform industries from medicine to telecommunications. We’re home to big companies like Safeway and AT&T’s California headquarters, but we’ve also become an incubator for small, scrappy businesses that include everything from health spas to real estate firms to start-ups offering essential if unglamorous services, such as medical billing and wireless networking.

To get a sense of how well the East Bay’s retail sector is faring, just try finding a parking space on a Saturday afternoon at your local shopping center or in downtown Walnut Creek. To see how firms that offer professional services are filling up our office buildings, visit the lobby of a two-year-old office tower in downtown Concord called the Metroplex and scan through its nearly full directory of blue-chip business tenants, including Wells Fargo Mortgage and Mutual of Omaha. Survey our construction boom by taking a drive up Tassajara Road north of Dublin or out Highway 4 in East Contra Costa County, where new homes, shopping malls, office buildings, and hospitals sprouting up in areas that were undeveloped just a few years ago.

True, when the dot-bomb hit, the East Bay lost some 50,000 jobs; but this was only a sideswipe compared with the 350,000-job head-on crash suffered by San Francisco and Silicon Valley.

That can be attributed to our economic diversity.

“We have a little bit of everything,” says Jack Hounslow, chairman of the board of Diablo Valley Bank in Danville. “That allows us to spread our risks as a community.”
Hounslow knows a thing or two about economic diversity. His sector, banking and financial services, is one that is thriving in the East Bay. Diablo Valley Bank itself is a new business, and it, like other community banks, is doing especially well because it serves other new homegrown businesses that need banks to manage their assets or loan them money for expansion projects. Diablo Valley Bank’s clients include health spas, fitness centers, real estate developers, and law firms. Opened just three years ago, the bank now manages $200 million in assets, and in 2004 opened a second branch in Pleasanton.

Driving the good times
Other features of our economy that helped us ride out the dot-bomb bode well for our future. We’re home to major transportation centers, which are vital for trade and commerce. There’s Oakland International Airport, which serves more than 1 million passengers a year and is the fastest-growing airport in the region. Then there is the Port of Oakland, the fourth-largest container port in the nation, which offers a strategic link for moving imports and exports between ships and local roads, railways, and interstate freeways.

Driving the good times
Other features of our economy that helped us ride out the dot-bomb bode well for our future. We’re home to major transportation centers, which are vital for trade and commerce. There’s Oakland International Airport, which serves more than 1 million passengers a year and is the fastest-growing airport in the region. Then there is the Port of Oakland, the fourth-largest container port in the nation, which offers a strategic link for moving imports and exports between ships and local roads, railways, and interstate freeways.

Also housed here are major universities and research centers, which provide jobs and foster new technologies. UC Berkeley provides work for more than 13,500 people, making it one of the region’s largest employers. The UC system also runs or supports cutting-edge laboratories in Berkeley and Livermore, and at the U.S. Department of Energy’s Joint Genome Research Institute in Walnut Creek. Lawrence Livermore National Laboratory employs 5,500 people in the East Bay and spends roughly $191 million a year on goods and services in the Bay Area.

Technologies developed by lab scientists have also spurred a number of small but innovative East Bay companies over the years.Before being acquired by Cooper Electronic Technologies, a Fortune 500 company, in 2001, PowerStor in Dublin used aerogel carbon, a material developed at the Lawrence Livermore laboratory, to manufacture quick-charging, long-living “supercapacitators” that power portable electronic devices, wireless transmitters, and medical instruments. MicroFluidic Systems in Pleasanton, founded in 2001 by a former lab scientist, develops devices that detect pathogens used in germ warfare.

One reason companies like these thrive here is that they can draw on a talented pool of local workers. East Bay residents have more years of schooling than the national average, which allows our region to stay competitive in an increasingly global, knowledge-based economy.

Also brightening our long-term economic prospects is the fact that people simply want to live here. They’re attracted to our open spaces, good schools, safe neighborhoods, cool shops, and fancy restaurants. Even during the dot-bomb, people kept streaming in, making the East Bay not just the jobs center of the Bay Area but the residential center as well.

Some 2.5 million people live in Alameda and Contra Costa counties. That number has grown by 18 percent in the past 15 years, and is expected to hit 2.9 million by 2025. These new arrivals raise demand for goods and services, boosting local profits, increasing the area’s wealth, and providing opportunities for new business and venture capital investment.

Testifying to our region’s growing clout in the Bay Area’s cultural landscape is the Commonwealth Club of California’s recent decision to expand its distinguished speaker series to Lafayette. Scheduled guests include Richard A. Clarke, a former presidential advisor on national security issues, and Bruce Babbitt, the former interior secretary.

Kevin Grauman moved the headquarters of his highly successful human resources company, the Outsource Group, from San Francisco to Walnut Creek in 2000. Started in 1997, the company was named the nation’s fastest-growing private company in 2002 by Inc., and has since stayed in the Top 50.

“In San Francisco, we started looking for expansion space in 2000. It was the height of the dot-com boom, our landlord got greedy, our rent more than tripled, and we said, ‘No way.’ We started looking for other locations, saw that Walnut Creek was along a BART line, and we ended up here. It’s been great.”

Walnut Creek’s low-rise office environment also felt less “frenetic” than downtown San Francisco, and parking was certainly cheaper, says Grauman. But he points out that this former bedroom community was able to offer many amenities of an urban center: highly skilled workers who might not want to commute to San Francisco, an airport less than an hour away, and access to great shopping, restaurants, and entertainment.
Grauman also moved with his wife and two children from Marin County to Alamo and found that the East Bay nurtures a saner culture, a rarity in the fast-paced, hyperproductive Bay Area. “There’s more of a work-life balance in the East Bay than in other places,” he says. “People here aren’t working 24 hours a day, seven days a week.”
 

 

Hot Industries
Our booming population has driven demand for new hospitals and clinics, law firms, building contractors, real estate agents, and insurance and accounting companies. Some 104,600 people work in health care in the East Bay, a 5 percent increase since 2004, and both John Muir Health and Kaiser Permanente are in expansion mode. John Muir Health is building a new hospital in Brentwood, while Kaiser is opening new medical facilities in Antioch, moving its information technology workers to Pleasanton, enlarging its medical office in Livermore, and eyeing land in Dublin that might be home to a new hospital.

Schools are also job engines. From 2004 to 2005, the number of jobs in education increased by 5.1 percent, to roughly 20,800 jobs. Top employers include public school districts, as well as community colleges, and state and private universities.
One growing education market in the East Bay is for schools that help working adults burnish their résumés with professional training or advanced degrees in such areas as health care, business, or law. Not only is John F. Kennedy University the number-three employer in Pleasant Hill, providing jobs to more than 500 people, but enrollment in its professional programs is growing by about 100 students per year. The UC Davis Graduate School of Management began teaching courses at its new satellite campus in San Ramon this fall, joining Cal State East Bay, St. Mary’s College, and the University of San Francisco in offering programs here that train future executives and business owners.

Eileen Ackley, 54, of Pleasanton is excited about working toward her MBA at the University of Phoenix campus in Livermore. “We spend a lot of time focusing on the changing nature of business, how we’re in a global society, how it’s us along with everyone else,” she says. Over the past three decades, Ackley has built up an impressive résumé working as a temporary and full-time administrative assistant for companies throughout the East Bay. Now, she’s decided she wants to be more than someone’s employee. “I’m thinking of starting my own business,” she says.
Although she is now a full-time student, Ackley still takes on occasional temporary assignments. The agency that places her is Danville-based Dynamic Office and Accounting Solutions, which, like other employment agencies in the region, is doing well. Dynamic Office Solutions helps other fast-growing companies hire workers, from administrative assistants like Ackley to chief financial officers. Founder Tiffany Stuart started out eight years ago with $10,000; now her business earns more than $7 million annually and is one of the region’s top 40 fastest-growing companies, according to the East Bay Business Times. “Oh, my gosh, our customers are hiring,” she says. “We’re busy. The market has opened up, and companies are trying to replenish all their support staff.”

As quality of life is one of the reasons people want to live here, it follows that businesses enhancing quality of life are thriving these days. Some 110,700 people work in retail in Alameda and Contra Costa counties, while another 83,700 are employed in “leisure and hospitality,” an industry that includes hotels, restaurants, movie theaters, performing arts companies, spas, fitness clubs, and even nail salons.

The Walnut Creek Bonanza
East Bay residents no longer need to drive through the Caldecott Tunnel to Berkeley or San Francisco for premier shopping, dining, culture, or entertainment. Those diversions are popping up in communities up and down the I-680 corridor. Nowhere is this truer than in Walnut Creek.

Downtown Walnut Creek has won kudos from Women’s Wear Daily for being one of the top retail districts in the nation, based on rent levels, while Broadway Plaza has a waiting list for tenants. In 2003-2004, retail sales taxes pumped nearly $31 million, or 35 percent of total revenues, into the city’s piggy bank.

Retail may be the blue chip in Walnut Creek’s portfolio, but arts and entertainment is another of the city’s fast-growing industries. Ever since the Dean Lesher Regional Center for the Arts opened in 1990, Walnut Creek has been Contra Costa’s center for visual and performing arts. Arts events in Walnut Creek draw about 900,000 attendees a year and generate more than $30 million a year for the Walnut Creek economy, including for restaurants that serve food and drinks to crowds before and after shows.
“There’s a lot more pizzazz here,” says Tapan Munroe, director of the Law and Economics Consulting Group in Emeryville. Munroe is a longtime Moraga resident who rarely ventures through the Caldecott for culture anymore. “Walnut Creek has done things very, very well. It has sidewalk cafés and people out in the downtown after dark.”

But those scary headlines?
For several years, economists at the venerable UCLA Anderson School have warned that the East Bay’s economy stands on shaky ground—for one of the key reasons that our economy is doing well: skyrocketing housing prices that have fueled a boom in construction and financial services related to real estate.

But those scary headlines?
For several years, economists at the venerable UCLA Anderson School have warned that the East Bay’s economy stands on shaky ground—for one of the key reasons that our economy is doing well: skyrocketing housing prices that have fueled a boom in construction and financial services related to real estate.

The worry is that if the rise in prices slows or prices decline, we’re in trouble, says Christopher Thornberg, a senior economist at the Anderson School. He prepares quarterly analyses for the East Bay Economic Development Alliance for Business.
In a report issued this fall, Thornberg wrote, “When the housing market starts to cool, as it inevitably must, this will create a heavy downward pressure on consumer spending. At best, all we can hope for is mediocre growth in California.”

Thornberg is particularly concerned that we’ll lose many of the jobs we’ve gained in recent years, because nearly half the East Bay’s new jobs are in construction. Another chunk comes from mortgage, insurance, and other financial services that profit from the housing boom. If real estate slows down, some of those jobs will dry up, he says.
But other business experts disagree that cooling home prices will sink the East Bay economy. “We strongly dispute the bubble-bursting theory, because the real estate market has staying power and growing power,” says Tom Hart, president of the Contra Costa Association of Realtors.

Hart points to the steady demand for houses from the continuing influx of people who want to live in the East Bay as a sign that real estate isn’t headed for a slump. One reason people continue to want to live here is that our housing prices, although expensive by national standards, are still affordable when compared with prices in San Francisco, Silicon Valley, and Marin County.

Hart and other experts foresee a “soft landing” because of the Economics 101 supply-and-demand argument. Prices will continue to rise, just not as spectacularly, because demand will continue to outpace supply. If anything, the market is bidding good-bye to the frenzy of the past few years and returning to a more normal, healthy state.
Adds Munroe: “Historically, we’ve had booms before, where housing prices went up significantly, then there were soft landings, and those have never led to a catastrophic loss of jobs and have never resulted in a recession, nationally or regionally.”

Onward to the future
No one can say for certain that the good times are here to stay. A cooling housing market causes jitters. But year-end reports are encouraging, showing that the national economy is adding jobs, keeping inflation in check, and putting to rest concerns that it was severely hurt by Hurricane Katrina.

This area, in particular, has a lot going for it. We have strong job centers, transportation hubs, and an entrepreneur base that is quick to scramble after opportunities (see “Small but Mighty” on page 58). We also have a growing population that drives the ever-expanding demand for everything from new fitness centers to fine dining. Of course, the secret of the East Bay is out, and it looks like we will have to share the good times—or even the mediocre times—with an ever-increasing number of people in moving vans headed our way. 

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