Biggest draw in the West: Why companies are heading to Texas

Business-friendly regulations and a desirable location in the center of the US have enticed companies to stake their claim in the Lone Star State.

January 26, 2017

In early 2017 Toyota will throw open the doors of a new Texan headquarters, after a $1 billion relocation that will see the company consolidate its California, New York and Kentucky offices in Plano, twenty miles northeast of downtown Dallas.

“Texas is emerging as a hotspot for businesses. That’s down to many factors, the biggest of which is the cost of homes, construction, labor and taxes. These are significantly lower in Texas than in other major cities such as Chicago, Los Angeles or New York City,” says Jeff Staubach, JLL President, South Central Region.

Cheaper operating costs and a lower cost of living were two of the main draws for Jamba, which relocated its headquarters from Emeryville, California to a 25,000-square-foot LEED-certified facility in Frisco, a city in the Dallas-Fort Worth region.

“In Southern California, homes cost $2,000 a month more than their apples-to-apples counterparts in Dallas. Employees who relocated would effectively get a $24,000 raise on the same salary,” Staubach says.

On the corporate end, Texan business tax incentives clock in at around $19 billion available annually in a bid to lure companies like Toyota, which received a $40 million subsidy towards its move.

From Silicon Valley to the Silicon Hills

While Houston recently claimed the head office of Mitsubishi Heavy Industries, relocated from New York, Austin and Dallas are luring the lion’s share of corporate moves and campus expansions.

Since 2014, nearly two dozen tech companies from the Bay Area have traded Silicon Valley and its steep costs of living and doing business for the Silicon Hills of Austin, where a wide talent pool, lack of state income taxes coupled with government tax breaks have encouraged major companies – an illustrious list including IBM, Google, Box, Apple, Dropbox and Oracle – to relocate or expand.

“Austin is very hot right now,” Staubach says. “The real estate market for sales as well as rentals is high.” The state capital hosts the annual SXSW music, film and interactive media festival, while its Chamber of Commerce is highly supportive of local tech start-ups. This creates an energetic environment for technology heavyweights as well as smaller outfits such as the digital media company Roku, who expanded into Austin in part due to thegreater availability of tech talent.

The Dallas draw

The swathe of companies that have started to call Texas home has also driven high job growth in its major cities. In the Dallas-Fort Worth region, 117,000 jobs (annualized) were created from 2015 to 2016, the second-highest in the country after New York City.

Staubach notes that over the last 25 years, as Texas relinquishes its reliance on oil for a diversifying economy, more Fortune 500 companies have made the state their corporate homes. The last two years alone have seen FedEx and JP Morgan Chase moving into Plano’s Legacy West, a $3 billion, 250-acre business and lifestyle development, with Liberty Mutual Insurance, State Farm and Toyota nearby. By early 2018, the corporation line-up in Plano will include mortgage giant Fannie Mae.

“Texas has a great location right in the middle of the country, and Dallas-Fort Worth is arguably one of the best airports with access to anywhere in the world,” Staubach says. “In rush hour from downtown Dallas or Legacy West, the worst case scenario is 45 minutes to the airport.” Traffic – or lack thereof – counts, especially when incumbent economic hubs like Los Angeles, New York City and Chicago are increasingly congested.

“It’s very easy to do business in the Dallas-Fort Worth area,” Staubach says. “Let’s say you’re a company out of LA that needs 200,000 square feet to move into – developers in the region can build it in 15-18 months. In other states, where the industry is less agile, you’re looking at more like two years.”

Real estate needed, real fast

With rapid growth comes what underpins it all – people. “By 2025, there will be more employees in Dallas region than New York City today. That’s about 9 million people,” Staubach says. “This corporate growth has had a significant impact on residential real estate in Dallas. We’re seeing more demand, higher rental prices, and land prices going up for both multi-family and single family developments.”

A PwC study on emerging trends in real estate found Austin and Dallas to be the top two U.S. cities for real estate opportunities in 2017. In particular, mixed-used developments – like Legacy West – were noted to have a competitive edge, while the diverse economies of both cities attracted employers and workers, providing a strong base for a ballooning real estate market where, in Dallas-Fort Worth, investment sales have shattered previous highs and rents are the highest they’ve ever been.

“Fundamentally, we’re talking about a strong economy – one of the most diverse economies in the U.S., and no longer tied to oil or energy,” Staubach says. “Even if oil prices drop, there’s enough economic diversity to weather it.”

Bigger in Texas

Even high school students are getting a taste of the real estate boom, Texas style.

When the Dallas Cowboys needed a new training facility, the football team partnered with the City of Frisco and the Frisco Independent School District to build a $1.5 billion complex containing training fields, a hotel, shops and restaurants, and a 12,000-seat stadium with luxury boxes and high-end concession stands – shared with the local public high schools, whose eight varsity football teams will each call it a home field for four or five games a season.

As Staubach says: “Only in Texas.”

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