What Drives Corporate Relocations?
During his latter years in office as Texas governor, Rick Perry made it a priority to lure businesses to the state, particularly from California. Two-and-a-half years into the term of Gov. Greg Abbott, the successor to Perry, the pace of corporate relocations to the Lone Star State shows no signs of slowing down.
Much has been written about the state’s business-friendly environment. Most businesses in Texas that aren’t sole proprietorships or partnerships pay a 1 percent or lower “franchise tax,” in lieu of a traditional corporate income tax. In addition, the state’s governing bodies tend to favor minimal regulations and sponsor research and development initiatives.
The state’s economy is healthy, evident by strong employment growth. The Texas Workforce Commission reports a net gain of 210,000 jobs across the state in 2016, and employers are projected to add another 225,000 jobs in 2017.
Equally important to strong job growth is the quality of life that employees are promised upon relocating.
According to Robert Allen, president of the Texas Economic Development Corp., the lifestyle element is perhaps the most common incentive for moving to Texas among executives and employees alike.
“When we ask executives why they’re moving to Texas, what we hear is that providing a high quality of life for their workforces is number one on their lists,” says Allen.
“Employees back that claim up. They’re able to buy larger houses, keep more of their incomes, send their kids to good schools and live in safe neighborhoods. This makes it easier for employees to take a leap of faith,” he adds.
Texas has no personal income tax. Its education system currently ranks 21st based on a state-by-state study by wallethub.com, a credit scoring and reporting site. The study considers factors such as average SAT/ACT score, dropout rates, student-teacher ratios, graduation rate for low-income students and remote-learning opportunities within online public schools. The Huffington Post also notes that Texas has the fourth-highest graduation rate in the country, despite its ever-growing population and high percentage of non-native-English-speaking students.
And according to a recent study from the NYU School of Law, while violent crime rates are rising in urban areas throughout the country, they’re holding steady in Texas. The state’s murder rate falls in the middle of the pack despite it being a national leader in population growth.
Relocations have been a key driver of the state’s robust real estate market, and Allen doesn’t see that changing any time soon.
“Our market understands the needs of the corporate world,” says Allen. “We have demonstrated an ability to close deals because we have tremendous space, a strong workforce and a deep pool of real estate talent to draw from. I don’t think we’re anywhere near the end of the relocations and expansions.”
DFW Leads the Charge
The real estate market in Dallas-Fort Worth (DFW) has been the primary beneficiary of corporate relocations and expansions.
According to the Dallas Business Journal, the 20 biggest relocations from other states or countries to DFW that were completed or announced between 2015 and 2017 accounted for the creation of approximately 7,600 jobs in North Texas.
Those relocations also generated more than 9 million square feet of newly leased or constructed space. About half of those 20 companies came from California.
Toyota Motor North America epitomizes the opposing environments of California and Texas.
The company’s relocation of its North American headquarters from Torrance, California to the Legacy West development in Plano represents a capital investment of roughly $350 million. In addition, the move brought more than 4,000 jobs to the state.
In determining where to relocate, Jim Lentz, Toyota North America’s CEO, saw several appealing factors in North Texas, all of which reflected the high quality of life he wants for his employees.
“About half the criteria behind the move were business-related and the other half were focused on our team members,” says Lentz. “For our team members, we wanted a location with good schools, a reasonable cost of living and housing, and less stressful commutes to work.”
Lentz also appreciates how spread out his company’s new 100-acre campus is, noting that the sprawl of the campus grants employees different routes to get to and from work. Lentz believes that this feature will make for easier commutes and allow employees to have more flexibility in deciding where they want to live.
“Overall, we felt strongly that Plano would provide our team members the kind of benefits we want them to have, and would make them happy,” says Lentz.
On the operations side, proximity to an airport that provides direct flights to the company’s 10 manufacturing plants across the country, as well as to Japan, were key factors in Toyota’s site selection process.
The state’s combination of business and personal appeal has drawn other companies, such as beverage retailer Jamba Juice, which announced its move from Emeryville, California, to Frisco in May 2016.
“Texas offers a low cost of operating and access to a wide variety of restaurant and food service talent,” says Josh Nicosia, vice president of development and legal affairs at Jamba Juice. “In addition, Frisco is a family-oriented community that embodies the fit and fun lifestyle that is at the core of our brand, customers and team members.”
Nicosia adds that finding a market that provided “an affordable cost of living and great quality of life for team members” was instrumental in Jamba Juice’s decision on where to relocate.
The head honcho of another West-to-Southwest company, Jacobs Engineering Group, which relocated to Dallas from Pasadena, California, in late 2016, sees the move to Texas as integral to continued growth.
“Jacobs has had a presence in Texas since 1987,” says Steve Demetriou, chairman and CEO of Jacobs. “The relocation of our corporate headquarters to Dallas enables us to maintain our high-performance culture and workforce, ensures access to top talent and positions us for access to our clients and partners around the world.”
Other Markets Reap Rewards
Dallas-Fort Worth has been the ringleader of corporate expansions, relocations and consolidations. But major firms are planting their flags in other markets as well, contributing to the growth of jobs, leasing activity and construction alike.
“We are seeing tremendous expansion in DFW, but that doesn’t mean the other areas of the state aren’t performing,” says EDC’s Allen.
Near Houston, Amazon.com is building a 1 million-square-foot distribution center in Katy that is projected to create more than 1,000 jobs. In addition, Mitsubishi Heavy Industries recently moved its American headquarters from New York to Greenway Plaza in downtown Houston, creating additional jobs and providing some much-needed absorption to the metro’s office space.
In San Antonio, television-streaming firm Hulu is investing $13 million in a new, 45,000-square-foot viewer operations center. Healthcare IT firm CaptureRx, as part of its 300-job expansion, has moved its headquarters to downtown San Antonio, leasing an additional 60,000 square feet in the Kress and Grant buildings.
In South Texas, auto parts manufacturer SATA Group is building a $114 million, 350-acre plant in Brownsville, a project expected to create at least 300 jobs. The campus will serve as the Italian firm’s North American headquarters. And of course we can’t forget ExxonMobil and SABIC’s 1,300-acre plastics plant near Corpus Christi, a $10 billion project expected to create 6,000 jobs and come on line as early as 2020.
Corporate Hub: Legacy West
Along with the $5 Billion Mile in Frisco, the Legacy West development in Plano has come to symbolize the prototype for corporate campuses.
The 250-acre, $3 billion mixed-use project, which officially opened on June 2, will serve as the primary operating base in North Texas for the likes of Boeing, Liberty Mutual and JPMorgan Chase.
From its Class A office space to its easily accessible shops and restaurants to its on-site residential options, Legacy West embodies the everything-in-one-place model that corporate executives are currently drawn to, says Toby Grove, president of KDC, one of the project’s developers.
“There has been a dramatic shift in the criteria that many leading corporate groups desire, and it’s all based on the ability to attract and retain the most skilled employees,” says Grove. “Workforce costs far exceed real estate costs, and by having high-quality and engaging buildings, along with walkable amenities, corporations can gain a competitive edge in today’s market.”
Grove adds that the open, collaborative work environment that defines office space within Legacy West is an equally hot trend in the corporate world.
“Proximity to outstanding and varied restaurants and retail, viable mass transit options and integration of the corporate office into a mixed-use community are all particularly exciting today,” he says.
The development’s cutting-edge office space and surrounding amenities will improve employees’ productivity and job satisfaction, according to Greg Hassell, executive director of media relations at JPMorgan Chase, which will consolidate about half of its North Texas workforce at Legacy West.
“The new campus will make it easier for our employees to collaborate while reducing our operating costs in the DFW market,” says Hassell. “When you bring 6,000 people together from different work groups to collaborate, there’s going to be improved career mobility.”
Hassell adds that JPMorgan Chase picked Legacy West because the company wanted its employees to have a “live-work-play” environment on its new campus.
“DFW is a very important market for us, and this campus is a demonstration of our commitment to it,” he says.
Government Pitches In
Taxes, regulations and fancy office developments aside, Texas officials are finding other ways to attract businesses to their market. The state has become a national leader in research and development within the life sciences.
One of the key drivers of this change is the Governor’s University Research Initiative (GURI), a program established by Gov. Abbott in 2015 wherein the government matches the dollar amounts of research grants offered by educational institutions throughout the state. The goal is to incentivize leading researchers to do their work in Texas.
According to the EDC’s Allen, this support for medical research and innovation has been an unsung factor in bringing businesses to Texas.
“Our diversification in terms of the life sciences, research and technology is the reason you’re seeing this corporate expansion continue well into 2017,” says Allen.
The Texas Medical Center in Houston, home of The University of Texas MD Anderson Cancer Center, a leading provider of cancer treatment and research, has become the embodiment of this commitment. The center’s $3 billion in projects currently under construction exemplifies the strong connection between political support for research and development and a thriving real estate market.
“Business leaders get excited by our commitment to match costs dollar-for-dollar to bring top researchers into the state,” adds Allen. “They want to be near that cutting-edge research and innovation.”
— This article first appeared in the June issue of Texas Real Estate Business magazine.