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Rising Rents Push Manufacturer to Buy in Silicon Valley

By Sharon Simonson

Skyrocketing rental rates in its Sunnyvale hometown drove biomedical device-maker Zoll Medical Corp. to search for alternate digs and ultimately to buy a manufacturing building in San Jose, its president said.

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Palazzolo

Massachusetts-based Zoll faced rents in the Sunnyvale neighborhood near 650 Almanor Ave. in the “mid-2.50 per foot” range, James Palazzolo said. “That is more than twice as much as our existing rental rates. That has driven us to look at lower-cost options to control our costs over time.”

The company signed the lease for Almanor in 2008 and occupied in early 2009.  The building is owned by Deutsche Asset & Wealth Management, the former RREEF Real Estate.

Now Zoll has acquired a 124,000-square-foot manufacturing building on more than eight acres in North San Jose at 2000 Ringwood Ave. where it intends to occupy 80,000 square feet at the beginning of next year and to continue manufacturing. Its new digs are more than twice its 54,000 square feet in Sunnyvale and include office space, lab space, a clean room production area and warehousing, according to brokerage Cassidy Turley. The company plans to finish the building’s remaining square footage as demand requires.

“We don’t get the recognition of the semiconductor, networking, IT and other tech companies, but the Bay Area is a hub of the medical-device industry globally,” Palazzolo said.

The region has the largest concentration of biomedical employment in the state at more than 51,000 workers, or 20 percent of the California total, according to the California Biomed Industry 2012 Report from PricewaterhouseCoopers, BayBio and the CHI-California Healthcare Institute.

Zoll employs 225 people and anticipates increasing its payroll by about 10 percent a year based on its current growth, Palazzolo said. Most of its workers are skilled craftspeople with extensive experience in the industry but without a lot of formal education. “We are able to find them here in greater abundance than in other places in the U.S. with big medical-device concentrations—Boston and Minneapolis and some others that are up-and-coming—but Silicon Valley is the leader globally for this kind of work,” he said. “So, we can find people here, but it doesn’t make it easy.”

Tracking the medical-device industry can be imprecise because the data is separated into more than one category by the federal government under the North American Industry Classification System, said Howard Wial, executive director of the Center for Urban Economic Development at the University of Illinois, Chicago. Wial is an expert on manufacturing, labor, workforce development and innovation.

U.S. manufacturing recovered about 4 percent of its jobs from 2010 to late 2012, Wial said. That followed a precipitous 33 percent decline in the first decade of the century, which followed steady decline in the 20 years before. Silicon Valley manufacturing in particular got crushed in the last decade, losing not quite 40 percent of its jobs from 2000 to 2010, according to “Locating American Manufacturing: Trends in the Geography of Production,” by Wial and two co-authors.

“A good part of [the current manufacturing recovery] is bounce-back from the recession,” Wial said. He described the current rate of manufacturing recovery as a “trickle.” Without better government policies, that won’t change, he said. “We certainly need better support for research and development in manufacturing, not just at the invention stage but support for commercialization—prosaic R&D that improves products and creates new ones.”

Looking solely at the “medical supply and equipment manufacturing” industry classification (Wial says there is at least one other where medical-device jobs are included), at the end of last year, 142 medical-supply and equipment manufacturers in Santa Clara County employed more than 4,600 workers. They earned a quarterly payroll of $106 million, or $1,772 a week on average, according to the most current tally from the Employment Development Department. That is up from a cyclical low of 3,600 workers in 2009 but still below the peak in 1999, when the sector employed 5,550.

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