How COVID has changed the way companies think about cities, states

Transcription:
Chip Barnett: (00:03)
Hi, and welcome to another Bond Buyer podcast. I'm Chip Barnett. My guest today is John Boyd. He's a principal at the Boyd Co. and we're gonna be taking a look at how the COVID-19 pandemic has altered the way companies are looking at cities when they think about where the best place for their headquarters is to be. Welcome to the Bond Buyer.

John Boyd: (00:26)
Hi Chip. It's great to be with you,

Chip Barnett: (00:29)
You know you guys have just put out a report detailing the national trends in headquarters and relocations. Can you talk a bit about what's going on in the United States today?

John Boyd: (00:41)
Well, this has been a, a time really of unprecedented mobility for people and for companies that now are adapting to this new landscape, companies are only as good as their people. And what we've seen is a massive migration away from high tax areas like California and New York to lower cost markets, mainly in the Sunbelt that offer, more suburban settings for offices that tend to have a lower cost profile, lower taxes, better business climates. And one of the major effects of this is, you know is projects are getting smaller. Okay. We know about this remote working trend and based upon what our clients are telling us, this is a trend that's here to stay, at least on a hybrid basis. So projects are getting smaller. We're using the term satellite office to refer to head office and regional offices, and we're tending to place our projects in more suburban, lower tax settings with a lower cost of living.

Chip Barnett: (01:52)
Yeah, I've heard that a lot about people saw talking about hybrid work — three days in the office, two days working from home. How much of an effect did COVID really have on the way CEOs are thinking about their headquarters?

John Boyd: (02:09)
Well, remote working was a trend prior to the pandemic, roughly 5% of the workforce worked remotely prior to COVID. Uh, there's no question that pandemic accelerated the trend. Uh, this is very much a, a digital economy and the cost savings associated with streamlining real estate commitments is enormous for companies. Companies are taking advantage of downsizing, their offices and allowing workers to re work remotely on a, on a hybrid basis. Uh, and it's becoming a important HR tool. Okay. One of the big challenges in the site selection business today is the availability of labor. This is an historically difficult tight labor market. So companies are utilizing remote working as a recruiting and retention tool to attract and retain talent. And the question then becomes, you know, where should these new downsized corporate head offices be located? And it, it really fits that profile of, uh, or these 15 markets that we've identified are consistent with this new profile. These are states that have superior corporate income tax rates, states that have attractive overall business climates that states that have low personal income taxes and states that are proximate to hospitality, infrastructure, and markets with low operating cost structures.

Chip Barnett: (03:41)
What do you think the modern headquarters is going to look like? You know, how much has it changed BC, before COVID?

John Boyd: (03:48)
Well, the, the, the know immediate effects here is, is that projects are getting smaller. Companies are accounting for a workforce. That's not gonna be in the office Monday through Friday nine to five, that allows companies to shed excessive and expensive class, say office space. You're also seeing new mixed use developments come about in more suburban locations that offer the types of lifestyle amenities that historically were only found in, in major urban areas. The other, you know, factor, this is a time of unprecedented mobility among our nation's workforce, and increasingly workers wanna live in work in areas that have low taxes and a lower cost of living and affordable home prices.

Boyd provided photo

Chip Barnett: (04:37)
Out of the top 15 cities that you selected in the United States. Could you little bit about the top three?

John Boyd: (04:44)
Sure. The the top Western U.S. location is Minden, Nevada. Minden is roughly less than an hour away from Reno Nevada, which is one of the nation's fastest growing technology clusters. It's home to companies like Facebook and apple and Tesla and switch Northern Nevada is really emerged as a premier place for migrating tech workers leaving the bay area. There's no personal worst state income tax in Nevada. And you know, why do we select Minden? Minden has the land, okay, there's an abundance of available land in Minden. That's proximate to not only the hospitality infrastructure of Reno, but also lake Tahoe. And it's some of the most beautiful landscape in North America today. You could be in a corner office in Minden and have a view of the Sierra Nevada mountains, which is a skyline that would rival a, a downtown Manhattan skyline, or a view of Biscayne Bay with an office in Miami for, for example.

John Boyd: (05:46)
So Minden is, is our top choice in the Western U.S. It also enjoys significant operating cost advantages, and really has emerged as a close in alternative for migrating tech companies and workers that wanna leave the, the difficult bay area business climate that N necessarily don't want to go to a farther choice like in Austin or a Raleigh or South Florida. In the mid-U.S., we have Mount Juliet, which is a popular suburb of Nashville. We like Mount Juliet because it's close to the airport. Mount Juliet has the lowest home prices and lowest property taxes of any location or of any, any of the, any of the popular Nashville submarkets Mount Juliet's in Wilson county. And interestingly enough, Chip, two of our last major projects, economic development projects announced in the White House were clients of ours.

John Boyd: (06:44)
We counseled Moldex, which happened at the tail end of the Trump administration. Trump announced that project Moldex is the second largest manufacturer of personal protection equipment. They went to Wilson county where Mount Juliet is located and Biden just announced in the white house. Tritium, it's an Australian EV battery charger manufacturer. They were a site selection client of ours, who we also loved Mount Juliet area. So that's an exciting market that we're seeing a lot of, a lot of activity happening in the East. We have Punta Gorda, which is in the Sarasota metropolitan area. It's along the I-75 corridor. Despite all of the growth in Florida, there are still cost efficiencies along the, the Gulf coast and Punta fits nicely. And you also have the new sun seeker resort being developed by Allegion airlines. I expect that to be a catalyst for new economic development activity throughout this Sarasota market.

Boyd provided photo

Chip Barnett: (07:50)
Why were these cities selected? Can you go into a bit more detail about the site selection decision?

John Boyd: (07:57)
Yes. These, these are all cities that enjoy positive state business climates. These are states that lack a personal income tax or a corporate income tax. These are states that have attractive lifestyle amenities. These are locations that have low business costs. These are also locations that are, are close to travel and hospitality infrastructure. And I think that's an interesting point. There's really a, a dichotomy here that the rise of remote working the rise of hybrid working has increased the need for corporate team building. So being an amended, for example, proximate to both lake Tahoe and Reno or Mount Juliet close to Nashville's thriving hospitality amenities, you know, all of that, presents a company with, with real value, with respect to team building events, training events, and other types of corporate meetings. And these are all markets that have positive in rates. These are all regions of, of the country that are attracting talent from other parts of the country.

Chip Barnett: (09:03)
Okay. And we'll be right back to this important message. And we're back talking with John Boyd about national trends in company headquarter relocations across the United States. Let's for a moment, take a deeper dive and take a look into the Sunshine State. You know, Florida has seen record shattering growth rates. Why is it so attractive to people and why are these cities in Florida such a good fit for companies?

Boyd provided photo

John Boyd: (09:32)
Well, you you're right, Chip. All parts of the sunshine state are firing on all cylinders with respect to economic development. A thousand people a day are moving to Florida, and it's not just new Yorkers. I mean, for years, Florida was called the sixth borough of, of Manhattan. In, in recent years, we're seeing increased numbers of, of California, uh, migrants and companies leaving California, look at Florida and move to Florida. We're seeing an influx really from of wealth and people and business from around the globe, Florida truly is an international global gateway city. There are a number of reasons why obviously the tax climate, no personal income tax in the sunshine state, the, the salt deduction cap, I think continues to be a, a motivating factor for people leaving markets that have high property tax rates, particularly people in states like Connecticut and New York and New Jersey and parts of California, you know, but above and beyond those tax reasons, uh, Florida offers a type of live work and play amenities that are really ruling the site selection process today for, for the, uh, tech industry for software companies and increasingly for corporate head offices

Chip Barnett: (10:45)
On the flip side, what's the downside about moving to Florida? What challenges will companies and their employees face?

John Boyd: (10:54)
Well, there are clearly challenges that Florida is dealing with as a result of this unprecedented record shattering growth. The two main challenges are affordability and housing affordability is a major focus for both political parties and Tallahassee and infrastructure. There are demands on infrastructure to accommodate all of this record growth. We saw situations of flooding recently in Miami and the highly publicized sewer problems in Fort Lauderdale, traffic in congestion is a major problem. There's some innovative ways that lawmakers are attempting to deal with these issues. I think we're gonna see more creative zoning for more affordable housing to, to come on stream. I think the rise of transit orientated mixed use development with an affordable housing question is something we're gonna see more and more of. And, you know, it's, it's gonna be BrightLine and TriRail playing a big role in economic development over the next decade or so, you know, that the old joke is that Floridians love their cars.

John Boyd: (12:00)
They'll never embrace public transit. That's not true anymore. Okay. Because the hundreds of thousands of new Yorkers and new jerseys and people from the Northeast moving to Florida, public transit is in their DNA and housing developers are recognizing this, and there are a number of new projects coming on stream from south Florida to Orlando. Ultimately we expect similar activity as bright line extends west on I four into the Tampa St. Pete market. And in Florida, you know, another part of the Florida, you know, winning formula, if you will. We always say economic development success is about the stake in the sizzle. The stake is selling Florida's, you know, quantitative assets, the lack of a personal income tax and favorable business costs that the sizzle has to do with salesmanship. And the state has been effective in promoting itself to site seeking companies. And it has a lot of assets in that regard. I was at the party over the past couple of weekends ago for the Formula One racing. And that, that was the hot ticket in town. And a lot of, you know, job creators around the globe were in Miami. And, and that's an example of Florida being able to execute an event like formula one and that translating into real economic development projects.

Chip Barnett: (13:24)
Well, exactly. I know the mayor, Francis Suarez wants to be the Crypto Capital of the world. You know, they're planning to do a stadium for Beckham, which actually is gonna be privately financed. So there's a lot of things that are going down in Miami and in South Florida at the moment. But, you know, looking at some of the other cities on your list around the country, you know, these places are hot and on your list now, but what about the future for them?

John Boyd: (13:53)
The big challenge for a lot of these high growth Sunbelt states are affordability the lack of available real estate for office projects. And anti-growth sentiments taking hold in areas where you have, you know, NIMBY concerns that there's just been so much growth. And, you know, this mix of 15 cities, a lot of this is a reaction that we're having towards data requests that are coming into our firm through our BIZost.com DataBank. There's no better example of that than Minden Nevada, quite frankly. And it's not just California based companies, it's companies that were considering an expansion or relocation in Phoenix or in Denver, but because of inflationary cost pressures, they want to take advantage of Nevada's superior business climate, the labor market of Reno, which is rich in tech skill sets and the availability of land that we've identified in Minden.

John Boyd: (14:53)
So it's interesting. They, they call economics of dismal science for every negative, there's a positive for every positive. There's a negative and a lot of the, you know, high growth markets that have been real winners in the, you know, post pandemic landscape are now dealing now dealing with some challenges, with respect to affordability, anti-growth sentiments. And in terms of the major cities lifestyle continues to be a major site selection factor, lifestyle concerns, you know, record levels of crime in cities like New York and Philadelphia and Chicago and San Francisco. That's something that many of our clients are reluctant to discuss publicly, but it is a driver. It's an influence. It's a data point that increasingly we're asked to document and look at for our clients. At the end of the day site, seeking companies, they want to go to markets where they feel welcome, where they feel they have a seat at the table in creating policy. And that's not a feeling that some states like California give to site seeking companies. Okay, where just a year or so ago, you had that California lawmaker tell Elon Musk to go F himself. I mean, that sort of underscores the attitude that many regulators and lawmakers have in states like California towards the business community.

Chip Barnett: (16:20)
Could you talk a little bit about cities that are not on your list that are growing, lets say Austin, but are facing headwinds now.

John Boyd: (16:29)
Yes, we include two cities in the Austin market, Leander and Round Rock. Dell happens to be a client of ours, of course they're headquartered in Round Rock and you know, no market really exemplifies the inflationary growth narrative more than Austin. You have Class A office space in Austin central business district now over $65 a square foot, you have wage growth more than double the national average in Austin. You have lifestyle concerns related to all of the growth record levels of homelessness. Austin is now called the most San Francisco-like city in Texas. And that's creating opportunities for some of these other markets that have lost projects to Austin in recent years.

Chip Barnett: (17:23)
So you think that presents other opportunities for other cities?

John Boyd: (17:27)
Absolutely. And a company that could be considering leaving San Francisco or San Jose that plan to move to Austin now dealing with these inflationary cost pressures and other issues Texas is dealing with, you know, Texas is about to eliminate the three 13 tax incentive this year. That's gonna present some challenges to their economic development program. Uh, you know, that's gonna create an opportunity for, you know, a close in alternative, like, like a Northern Nevada, for example, for a company considering a move out of the bay area to consider Minden, Nevada, for example, versus a Leander or a Round Rock or a market in that hyper expensive Austin marketplace.

Chip Barnett: (18:16)
Do you have any last thoughts for our listeners today?

John Boyd: (18:19)
I think this is an interesting study. I think his is a time of unprecedented mobility for people and for companies. And I think, you know, this digital economy, you know, remote working at least on a hybrid basis is here to stay. It is creating new economic development opportunities for parts of the country that not historically would be in the mix for a corporate head office or a regional office, or even a new tech or software facility.

Chip Barnett: (18:47)
John Boyd, Thank you very much for being here with us today.

John Boyd: (18:51)
Thank you, Chip

Chip Barnett: (18:52)
And a big thank you to the listeners of this latest bombard podcast. Special thanks to Kellie Malone and Kevin Parise, who did the audio production for this episode. And don't forget to rate us, review us and subscribe at www.bondbuyer.com/subscribe. With the Bond Buyer, I'm Chip Barnett. And thanks for listening.