SLO County’s 2016 economic forecast: Mostly bright, some clouds from high housing costs

As 2016 approached, The Tribune asked seven local industry leaders what to expect this year and what it will likely mean for the overall health of the county’s economy.

Here’s what they had to say:

Banking: Simone Lagomarsino, president and chief executive officer, Heritage Oaks Bank

The health of the banking industry mirrors the broader economy: when the economy is doing well, banks generally are, too.

The Central Coast is enjoying healthy growth in most sectors, and Heritage Oaks Bank, like many banks on the Central Coast, is similarly experiencing sustainable rises in lending activity and deposits.

The primary economic drivers in our area are agribusiness, tourism and professional services. These sectors are all areas of strength. The recent rains give us hope that agriculture will do even better in 2016.

The strong California economy should continue to draw large numbers of in-state visitors to our area, spending on our hotels, entertainment venues and shopping.

Our universities are incubators of talent. Many of their graduates have established local companies delivering products and services to a global market. We expect to see these companies expand and new firms to be established.

Home values are also increasing throughout our territory, with especially strong price appreciation near the coast, spurring mortgage sales, remodeling activity, new construction and related economic benefits.

Finally, we are encouraged that the Fed (Federal Reserve) recently increased rates for the first time in many years, which we interpret as a vote of confidence in the economy.

Our opportunities are in providing banking services to local residents and businesses in a growing economy, furnishing the financial tools that can improve the quality of life for everyone living here.

Hotels: Myraline Morris Whitaker, owner/principal, Central Coast of California Hospitality, Pismo Beach

Every hotelier in the area is concerned about the weather and the impact an El Niño will have on occupancy and rates, particularly because in the last few years the lines have been blurred among high season, offseason and shoulder season (the time between high season and low season).

During the drought years, we have seen record occupancies in January and February. The new season is any day the weather is 70 degrees and sunny. Those conditions draw visitors to the Central Coast.

For hotels in 2016, the forecast will be the more traditional occupancy patterns. If the El Niño forecast actually happens, there is little question it will adversely affect occupancy during the first quarter of 2016. However, all indicators still point to robust growth in revenue and occupancy for the full year.

Many of the much talked about hotel developments in Pismo Beach are underway, with the Inn at the Pier groundbreaking scheduled for February and The BeachWalk groundbreaking scheduled for September. In Arroyo Grande, a boutique hotel has been proposed. In San Luis Obispo, the long-awaited Hotel Serra on Garden Street broke ground after 11 years of planning.

Real estate: Tim Townley, Realtor, Comet Realty, San Luis Obispo

For 2016, we see a continued strong market. We live in a wonderful place. Real estate is a very local business; the difference of only 10 to 20 miles can be quite shocking. For example, the average price of a home in San Luis Obispo as of November 2015 was $591,951, up from $448,540 just three years ago. That’s over a 30 percent increase.

In Atascadero, as of November 2015, the average price was $425,775, up a little over 20 percent from three years ago when the average was $350,664.

Limited inventory is really a big factor in these numbers. Currently in SLO, it takes an average of 52 days for a home on the market to sell. In a normal healthy market, that number is closer to 90 days. This causes the prices to rise. It’s a clear example of supply and demand.

I believe prices will remain strong, as we are still much more affordable than areas like Santa Barbara and Carmel, just to the south and north of us. People from all over the country are heading to the Central Coast for our wonderful weather and healthy lifestyle. As that demand continues to rise, so will property values.

Technology: Joshua Erdman, president of Softec, a nonprofit technology trade association serving the Central Coast

Housing is a problem shared among all of the county’s working class. Many techs want to live here, but the cost of living is too high, either requiring them to move far and telecommute or look for jobs elsewhere. Either way, the local community loses good people and the money spent by these potential Central Coast residents.

As far as wages are concerned, successful large tech businesses and acquisition of small tech firms have provided new, high-paying jobs in the area. This helps bridge the gap in housing costs for employees, but it also creates pressure against local tech companies who cannot afford to compete in pay. It will take some time for these larger wages to change the economy enough for local tech firms to be competitive.

The Central Coast also has many resources for the acceleration and growth of new and upcoming startups. We can continue to see new, exciting innovations throughout 2016, but unfortunately, with only a few local VCs (venture capital investors), we will also continue to see many of these new businesses be pulled out of the area as they relocate to where the investor’s circle of connections and partners are.

Wineries: Dana Merrill, founder, Mesa Vineyard Management, owner Pomar Junction Winery, Templeton

We will start the year with much less bulk wine inventory statewide and locally, so wineries that buy fruit should seek grapes in 2016. About half of the county’s production leaves the county, much as grapes for statewide labels. Local wineries should buy also for their growing brands.

After a very light year yield-wise, due to drought and poor springtime bloom weather, we hope for a wet winter and return to more typical yields, and a respite from pumping to give the aquifers a chance to recover. Salts build up in the soil during drought and rains leach them out. The labor supply also continues to be tight and is an increasing concern each year for growers.

Wine industry: Brian Talley, owner, wine grape grower, Talley Farms, Talley Vineyards, Arroyo Grande

The wine industry will continue to grow and prosper in San Luis Obispo County. Paso Robles has been recognized as one of the most exciting wine regions in the world. Look for increasing recognition of coastal San Luis Obispo County as a great source for elegant chardonnay, pinot noir and aromatic white wines.

Labor will continue to be a challenge. Most farmers who I talk to agree that we are about 20 percent short of the people we need to care for and harvest the crops we grow. The wine industry is adaptable to mechanization, and an increasing proportion of the grapes grown in SLO County are machine harvested. We have not found good mechanical solutions for the other key commodities in our county: strawberries, vegetables, avocados and citrus.

If we don’t receive at least average rainfall, agricultural production will decline.

The trends we saw in 2015 are likely to continue: increased fallowing of land due to lack of available water, reduced cattle herds, decreased yields and reduced quality. Fortunately for farmers, much of this was offset by much higher prices for the commodities we produce. It’s hard to predict where markets will be in 2016 due to the global nature of our competition, but my sense is that markets will continue to be strong.

Tourism: Chuck Davison, president and chief executive officer, Visit San Luis Obispo County

All indications suggest another great year for travel in 2016, including travel to San Luis Obispo County.

Based on recent PKF Hospitality research reporting, national hotel occupancy is expected to hit a record high in 2016, peaking over 66 percent, while revenue per available room (RevPAR) grows another 6.3 percent. In SLO County specifically, hotel room supply is going to increase 4.6 percent with the addition of several new properties coming online throughout the county.

With the increase in room supply, the overall occupancy percentage is expected to slow a bit to 73.4 percent. However, overall occupied room nights are expected to increase 4.7 percent in 2016 based on additional demand. All of this, combined with new marketing efforts under the formation of the countywide Tourism Marketing District and over $1 million in feeder market advertising in 2016, suggest another robust year for tourism in the county.

Should El Nino deliver the much-needed rainfall some are suggesting, that could hamper first quarter travel arrivals to our county and California in general. The possible January through March decreases in tourism would be the first of their kind in a number of years on the Central Coast, causing year-over-year projections to dip.

With that said, the much-needed rainfall would also likely lead to an increase in tourism during the balance of 2016 as visitors again look to experience our lakes, mountains and natural landscape. Visit San Luis Obispo County is monitoring El Nino closely and adjusting our digital media plan based on projected weather.

This story was originally published January 9, 2016 at 6:11 PM with the headline "SLO County’s 2016 economic forecast: Mostly bright, some clouds from high housing costs."