Some parts of Carlsbad’s economy are returning to pre-pandemic patterns, although it’s still too early to know what the new normal will ultimately be, according to an economic and financial report on the first quarter of the fiscal year presented to the City Council Tuesday.

Carlsbad has the fifth highest population in the region but the second highest gross regional product. At $16.6 billion, Carlsbad’s GRP is a result of the city’s diverse economy, including life sciences; information, communications and technologies; cleantech; sports innovation and design; and hospitality and tourism.

“Revenge travel,” a term coined to explain pent up demand due to the COVID-19 pandemic, provided record revenues in 2022 from transient occupancy tax, the money paid by visitors when they stay in local hotels and short-term vacation rentals. Carlsbad consistently has the second highest transient occupancy tax revenue in the region, after San Diego.

That demand appears to be leveling off. The average occupancy of hotel rooms over the most recent 12 months is 72.3%, which is slightly lower than 72.7% at this time last year. However, transient occupancy tax revenues received during the first quarter of the fiscal year represent a slight increase of $31,000, or 0.3%, when compared to the same year to date period last year.

Office vacancy continues to inch up, now at 12.7%. Industry experts attribute this to companies with remote or hybrid workers not renewing their leases when they expire. On the other hand, Carlsbad could benefit from employers who are seeking smaller or satellite offices closer to where employees live.

Retail vacancy remains low, now at 5.4%. However, the low availability of retail space is driving up costs for businesses.

Finally, despite elevated interest rates, home values in Carlsbad have begun to rise again. The current median home price in Carlsbad is $1.45 million.

City financial update
Local economic performance is directly related to city revenues because the city relies on taxes to fund most day-to-day services. After the first three months of the fiscal year, city finance staff reported that spending is on track with projections, with about 70% of the annual budget remaining.