Exhibit CC 01-19-2016 Item No. 04 Economic Development Strategic Plan UpdateEconomic Development
Strategic Plan:
Background Report
City of Cupertino
City Council Study Session
January 19, 2016
Today’s Meeting
Introduction
Community Workshop
Fiscal Health
Employment and Industry Trends
Office Sector
Retail and Hotel
Introduction
Economic Development Strategic Plan:
Focus on Businesses in Cupertino
Regional and local economic trends: employment, industries, businesses
Retail trends and implications for Cupertino businesses
Impact of businesses on City’s fiscal health
Opportunities for maximizing the value of what is already here
Implementation strategies for City and partners
Process
Community
Workshop
August 2015
Draft
Economic
Background
Report
January 2016
Draft Strategic
Plan
Early Spring
2016
Final Strategic
Plan
Late Spring
2016
What We Heard
Community Workshop & Interviews
What We Heard:
Economic Assets and Opportunities
Location at the heart of Silicon
Valley
Excellent freeway access
Highly competitive tech sector
Highly educated and politically
active residents
Excellent school district and
quality of life
What We Heard:
Issues for Economic Development
Limited opportunities for clothing and other
specialty goods shopping and entertainment
Independent retailers and other small businesses
struggle with high costs
Predominance of a single employer
Protecting quality of life
is critical
Fiscal Health
Fiscal Health:
General Fund (GF) Revenues
Sales Taxes
30%
Property
Taxes
24%Other Taxes*
2%
Hotel Taxes
(TOT)
7%
Charges for
Services
15%
Utility Tax
5%
Other**
17%
*Includes business license taxes, construction taxes, and property transfer taxes
** Includes franchise fees, licenses and permits, use of money and property, fines and forfeitures, intergovernmental, and miscellaneous revenues.
Source: City of Cupertino 2014-15 Adopted Budget
General Fund revenues fluctuate with economic cycles
Growth in jobs, population, and investment has resulted in increased property tax, hotel tax, and sales tax revenues
Apple accounted for 18% of GF revenues (FY 2012-2013)
Fiscal Health:
General Fund Expenditures
Public Works
25%
Planning and
Community
Development
21%
Law
Enforcement
17%
Non
Departmental*
13%
Recreation
Community
Services
10%
Other**
14%
*Includes debt service and transfers to other funds, primarily to fund capital project costs.**Includes Administration, Administrative Services, City Council and Commissions, and Public
Affairs.Source: City of Cupertino 2015-16 Adopted Budget.
About 40% of
expenditures are
dedicated to resident
and community services.
Staffing levels have
been fairly steady over
time (2.8 to 3.0 FTE per
1,000 residents)
Employment and Industry Trends
Employment and Industry Trends:
South Bay Employment
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
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Employment Unemployment Rate
Source: State of California Employment Development Department, 2015
South Bay Employment Trends, 1990-2014
Employment and Industry Trends:
Cupertino Job Growth
Source: US Census ZIP Code and County Business Patterns, 2013
Total Employment in Cupertino and as a
Percentage of South Bay
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1998 2004 2007 2010 2012 2013
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Total Cupertino Employment Cupertino % of South Bay
Cupertino’s share of
South Bay jobs rose from
2.2%in 1998 to 2.6%in
2013.
Large Employers:
Professional/ Technical Services & Education
Sources: City of Cupertino CAFR;
US Census ZIP Code and County Business Patterns, 2012
Employer Sector Employees
% of City
Employment
Apple Professional & Technical Services 15,000 47%
Cupertino Union School District Education 1,597 5%
Foothill/DeAnza Community College District Education 1,183 4%
Fremont Union High School District Education 961 3%
Seagate Technology LLC Professional & Technical Services 500 2%
Affymax Inc Professional & Technical Services 304 1%
Pegasystems (formerly Chordiant)Professional & Technical Services 285 1%
Trend Micro Inc Professional & Technical Services 250 1%
Health Care Center at the Forum Health 250 1%
Employers in Cupertino with more
than 250 Employees, 2013
Firms with Fewer than 250 Employees
Cupertino and South Bay
Small and Midsize Businesses:
Strength in Professional and Technical Services Sectors
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
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Cupertino South Bay
Sources: US Census ZIP Code and County Business Patterns, 2012
21%of small and midsize
businesses in Cupertino
are in high tech.
Small and Midsize Businesses :
Many Local Firms are Very Small (1-4 Workers)
Source: US Census ZIP Code and County Business Patterns, 2012
Percent of Total Firms by Firm Size,
Firms with Fewer than 250 Employees
0%
10%
20%
30%
40%
50%
60%
70%
1 to 4 5 to 9 10 to 19 20 to 49 50 to 99 100 to 249
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Number of Employees
Cupertino South Bay
Competitive Position:
Opportunities and Challenges
Growing job base
Major technology employers
Concentration of small and
midsize professional and
technology firms
Attractive business climate for
small entrepreneurs and
startups
Few small and midsize
manufacturing businesses
Challenging environment for
midsize firms
Opportunities:Challenges:
Office Sector
Office Sector:
Cupertino Outperforms Other Communities in West and East
Silicon Valley
Source: Silicon Valley 1Q15 Office Market, Newmark Cornish & Carey, 2015; Colliers International, Q1 2015; Strategic Economics, 2015.
2.3%
8.9%
4.0%
1.1%
4.5%
2.1%
4.3%6.3%
13.1%13.1%11.1%
8.7%
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Vacancy Rate, Q1 2015
West Valley North Valley East Valley
$4.65
$3.48 $3.46 $2.76
$8.10
$5.53
$6.85
$4.41 $3.69 $2.79 $2.15
$3.67
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Average Monthly Asking Rent, Q1 2015 (per sq. ft., full service)
West Valley North Valley East Valley
Office Sector:
Low Vacancy Rates and Limited Turnover Limit Opportunities for
Businesses to Expand in Cupertino
Source: Silicon Valley 1Q15 Office Market, Newmark Cornish & Carey, 2015.
Number of Deals by Building Size, 2014
Office Sector:
Development Planned, Proposed, and Under Construction
Market Square Feet Percent of Total
Cupertino
Apple Campus II 3,400,000 9%
Main Street 260,000 1%
Vallco*2,000,000 5%
Total 5,660,000 16%
Other West Valley
Campbell 170,000 0%
Los Gatos 433,000 1%
Saratoga 0 0%
Total 603,000 2%
Other Santa Clara County
Mountain View 10,230,000 28%
Sunnyvale 4,828,000 13%
Santa Clara 5,870,000 16%
San Jose 9,264,000 25%
Total 30,192,000 83%
Total 36,455,000 100%
* The Cupertino General Plan allows for up to 2 million square feet of office to be built at Vallco; the amount of office area included in the
final development plan may change.
Source: City of Cupertino, 2015; New Development Report Q1 2015, Newmark Cornish & Carey, 2015; Strategic Economics 2015.
Major Employment Locations
Competitive Position:
Opportunities and Challenges
Premier office location
High-quality office stock
Access to skilled labor
Access to venture capital
Predominance of a single
tenant
Limited availability and
turnover of midsize spaces
Opportunities:Challenges:
Retail and Hotel
Retail Sector:
National and Regional Trends
Internet sales growing 3X faster than brick-and-mortar
Fastest growth in restaurants, grocery stores, personal and
business services
Limited new retail construction occurring in the Bay Area
Growth of mobile services
Trade area demographics
Competitors in trade area
Location and design of shopping
center
Storefront width and depth
Accessibility and visibility
Construction costs
Anchors and other tenants
Rent costs and deal structure
Retail Sector:
Factors that Impact Retail Location Decisions
ST
^_
TRADE AREA AND HOTSPOT
OVERVIEW MAP
¨¦§
¨¦§880
¨¦§680
¤£101
ST237
ST87
ST35
ST17
ST9
ST109
114
280
Milpitas
San Jose
Menlo Park
Palo Alto
Stanford
Mountain View
Sunnyvale
Palo Alto
San Jose
Santa Clara
ST85
South
San Jose
Cupertino/
Sunnyvale
Source: JLL, 2015
Retail Sector:
Cupertino’s Unique Demographics
Household spending is higher than U.S. average,
especially for day care, education, leisure, apparel
Majority of households are families with children
High numbers of young professionals and middle-
aged couples without kids
“Young Digerati”: 21%
“Movers and Shakers”: 6%
“Bohemian Mix”: 6%
Retail Sector:
Sales in Cupertino have fallen by 17 percent since 2005
Source: MuniServices, 2015; Strategic Economics, 2015.
Estimated Retail Sales in Cupertino
(Millions of 2014 Dollars)
$763
$632
2005 2014
$2,190
$854
$602
$1,254
$1,409
$1,387
$1,989
$1,407
$88
$489
$594
$755
$1,323
$1,762
$2,402
$4,054
Motor Vehicles and Parts
Building Materials
Grocery & Other Food Stores
Clothing
Gasoline Stations
General Merchandise Stores
Restaurants
Other Retail*
Per Capita Retail Sales
Cupertino
Santa Clara County
*Includes pharmacies, health and personal care, office supplies, sporting goods, books, and other misc. stores.
Sources: BOE, 2013; California Department of Finance, 2015
Retail Sector:
Strongest Sales are in Neighborhood-Serving Categories
Non-retail per capita sales
(business to business)
are 3x higher in Cupertino
than in the County
Retail Sector:
Highest Performance Nodes are in Anchored Centers, but Strip
Centers Provide Affordable Space for Independent Retailers
Source: MuniServices, 2015; Strategic Economics, 2015.
Shopping Center Performance in Stevens Creek Corridor
Retail Performance :
Homestead Square Sales Have Spiked Since Redevelopment
Sources: MuniServices, 2015; Strategic Economics, 2015.
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3
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Estimated Sales Sales Tax Revenues
Homestead Square Shopping Center: Estimated Quarterly
Sales and Sales Tax Revenues, 2013-2014
Hotel Sector:
High Room and Occupancy Rates, Driven by Business Travel
Room Occupancy by Day of Week
Cupertino, Aug 2012 to Jul 2013
Existing
Under Construction
Marriot Residence Inn
(Main Street)
•180 rooms
Hyatt House Hotel
(Vallco Park)
•148 rooms
TBD (Marina Plaza)
•122 rooms
TBD (The Oaks)
•200 rooms
Source: BAE Market Study, 2014
Proposed
Competitive Position:
Opportunities and Challenges
Strong local buying power
Many neighborhood-and
business-serving retailers
New investment underway
Declining sales and
stagnating sales tax
revenues
Highly competitive retail
trade area
Inventory of older strip
retail centers
Opportunities:Challenges:
Next Steps
Strategies and Implementation
Blueprint for city’s future economic development
Topics may include:
Supporting existing businesses
Retention and expansion of small and midsize firms
Diversification of fiscal base
Retail development and revitalization
Housing, land use policies, traffic, and specific
development proposals to be addressed in other
planning efforts
Questions and Comments?