Analyzing the Wave of Headquarter Relocations and its Impact on CRE
Corporate headquarters relocations from California to Texas was a significant trend during the early pandemic days, but these moves have slowed down recently. Propmodo tracked 500 publicly announced relocations from 2018 to 2023 and found that that Texas was the top destination, with Austin, Dallas, and Houston benefiting the most. Conversely, San Francisco/San Jose, Los Angeles, and New York City experienced the most departures.
While many relocations involved moves within the same metropolitan area or state, the tech and manufacturing industries led the charge, primarily seeking lower-cost talent. The peak year for relocations was 2023, but numbers have since declined due to higher capital costs and other economic pressures.
Texas, now home to 55 Fortune 500 companies, has attracted major firms like Charles Schwab, Oracle, and HPE. The primary draw for companies has been Texas's pro-business environment, lower costs, and tax advantages compared to California. Austin, in particular, has become a tech hub with significant cost savings and a vibrant cultural scene, although this growth has brought challenges like affordability issues and increased homelessness.
The relocation of corporate headquarters can have a significant economic impact on a city, leading to population growth, increased average wages, job creation, and higher tax revenue. For instance, Las Colinas, Texas, a suburb of Dallas, boasts the highest per capita concentration of Fortune 500 company headquarters in the U.S. This concentration contributes to its consistently low unemployment rate compared to the nation's top 12 largest metropolitan areas.
However, corporate relocations can also drive up housing prices, exacerbating existing affordability issues. A notable example is Arlington, Virginia, where housing prices surged by 33 percent within a year of Amazon announcing its new headquarters there, even before the company moved in.
Cities like Dallas and Austin, which are attracting more corporate headquarters, are experiencing similar challenges. Although Texas's housing crisis isn't as severe as California's, it still faces significant affordability issues. Since 2010, the median rent in Texas has increased by 55 percent, while median household income has risen by 45 percent, according to BuildersPath Housing Count. Texas is currently short over 420,950 low-income housing units, affecting households earning less than 60 percent of the area's median income. The state's housing affordability problems are largely due to a surge in new residents, with corporate relocations contributing but not being the sole driver of rising housing prices.
Investors are wise to stay up to speed on corporate headquarters relocations and their impact on commercial real estate and local economies due to the substantial economic implications these moves entail. The trend of companies relocating from California to Texas, which peaked during the early pandemic days, has demonstrated the profound effects such moves can have on both the destination and departure cities. Understanding the dynamics of corporate relocations helps investors anticipate shifts in market demand, property values, and economic conditions.
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