Now with the more contagious Delta variant of the Covid-19 virus infecting vaccinated and non-vaccinated people alike, many larger companies have postponed their reopening or are rethinking their plans.
This week two reports, coming from different perspectives, added some new information to the equation.
Wells Fargo Senior Economist Mark Vitner, in a call with clients, said he expected that the relocation from the Bay Area may well be permanent. He noted, in Mark Calvey’s report in the San Francisco Business Times newsletter, that initially people left for vacation destinations such as Truckee/Lake Tahoe, but that’s shifted into what he termed “a huge migration…an affordability migration.”
The second report from Hoover Institution fellows Lee Ohanian and Joseph Vranich documented just how many companies have left the Bay Area.
They reported that 74 companies relocated out-of-state in the first six months of 2021, double the rate in each of the three prior years. They identified 265 relocations since 2018.
Vitner told clients that with the Delta variant and worker concerns companies are taking a second look and rethinking whether they need headquarters in expensive cities such as San Francisco. He suggested that for young workers the city life will continue to be an attraction, but those married people raising families will see greener pastures elsewhere. He said that Brex and Coinbase are two companies once based in San Francisco who have shifted to a no-headquarters approach.
His list of destination cities for both individuals and companies are familiar names-- Denver, Salt Lake City, Nashville and Charlotte as well as Phoenix where housing prices have soared and Jacksonville, Fl.
The Hoover report noted that the moves are occurring across industries—manufacturing, aerospace, financial services, real estate, chemicals, health care and high tech. The tech exodus they write is very concerning because companies are very productive here and venture capitalists are eager to pour money into promising start-ups. The data for their report came from public documents and media reports and they note that the actual moving rate could be five times higher according to consultants in the relocation industry.
Vitner said the moves likely would be permanent because of the high real estate cost that works for departures, but is a roadblock to returning.
The Hoover fellows wrote, “Losing small but rapidly growing businesses is a death knell to an economy, because long-run economic growth requires new, transformative ideas that ultimately displace old ideas. And the transformative ideas almost invariably are born in young companies. At one time, Kodak and Litton Industries were Fortune 20 companies. Now they are afterthoughts. Out with the old, in with the new.
“Some of the small businesses of today will become the blockbusters of tomorrow, and California is losing far too many of these potential game changers. California is also losing the gifted creators of these businesses, creators who may start additional transformative businesses in their lifetimes. And if they do, these new businesses will not be launched in California.
“The primary reason why California businesses are leaving is economics, plain and simple. California is too expensive, too regulated, and too heavily taxed, both for companies and for the workers they hire. These businesses are predictably moving to states with lower costs, fewer regulations, lower taxes, and a higher quality of life for their workers, in which families pay far less for a home.”
They note Texas is the No. 1 choice having attracted 114 companies since 2018 that include Silicon Valley stalwarts such as Oracle and Hewlett Packard Enterprise as well as financial services giant Charles Schwab—all were founded here.
They write, “ Economic freedom? The American Legislative Exchange Council ranks Texas first, while California nudges out New Jersey to barely avoid the cellar. Ease of opening and operating a small business? California ranks 49th, again barely passing New Jersey, and is far behind the entrepreneurial states of Texas, Nevada, Indiana, and others. Taxes? California ranks 49th (meaning second highest) in overall tax burden as well as individual tax burden, while Texas is near the top. How do CEOs view California’s business environment? Annual surveys show they always rank California last and Texas first.”
Not a bright picture for the economic future of the once Golden State.