The Wave Of Corporate Relocations To DFW May Be A Blessing And A Curse
The so-called Texas miracle that has lured hundreds of U.S. firms to Dallas-Fort Worth in the past decade may have gained more political and economic steam during the coronavirus pandemic, but it could cause trouble for the metro down the road.
DFW has been luring companies with its pro-growth, low-regulation, low-tax mindset, and the influx of HQs has been generally seen as a huge positive for the region. But not every corporate relocation has a direct benefit to DFW, and there is a potential risk that too much of a good thing — a slew of relocations from higher-priced states all at once — could impact housing affordability, eventually killing one of the area's key amenities.
The corporate relocation momentum during the pandemic is keeping commercial real estate brokers busy.
"I am just one guy, and we are just one firm; and I do know for a fact that there is a very large pool of people that are in the process of navigating the corporate move to DFW and to Texas," Whitebox Real Estate co-founder and President Grant Pruitt said. "And those are just the ones in the process, there is an even greater number of companies evaluating a move to Texas."
Data from the Dallas Regional Chamber shows 15 corporate moves since March were classified as relocations, and the chamber booked another 29 corporate site moves as new operations, expansions and consolidations during the same time period.
California has taken the biggest loss to create Texas' gain: Elon Musk said he has already personally moved to Texas and intends to move Tesla from the Bay Area to some unnamed Texas location. Formerly Los Angeles-based CBRE announced it is turning its Dallas office into its headquarters. Silicon Valley mainstay Oracle is moving its headquarters to Austin, and Los Angeles MSA-based veterinary supply firm KVP International announced plans this past summer to move to 120K SF in McKinney.
Not all of the biggest deals were HQs: fitness equipment company Peloton announced plans to expand its Plano hub, adding more than 100K SF of office and 1,600 employees and making its Texas hub larger than its New York HQ.
It seems the gravy train of corporate relocations is on track to continue.
The Lone Star State became even more attractive after the coronavirus crisis when Texas' more shutdown-reluctant leadership was compared to states that took a more heavy-handed approach, forcing more businesses to close their doors for longer periods.
"A lot of companies want to get back to work and the regulations and shutdowns have made it impossible to do that in those other jurisdictions in California and New York," Transwestern Senior Vice President Billy Gannon told Bisnow. "I have met a lot of people in the past six to nine months who have moved to Dallas, and the straw that broke that camel's back was the schools not being open."
Musk in an interview with The Wall Street Journal noted that Silicon Valley's influence has become onerous and will likely lessen. He said he believes the state of California has become complacent.
It isn't all about offices. DFW also offers out-of-state corporations what they need most in today's e-commerce-centric world, including available land, highway infrastructure, a low cost of doing business and a central location between the trade hub of Port Houston and easy distribution routes to the middle of the U.S.
"We are a great location from a manufacturing standpoint and a supply chain," Gannon said.
Add it all together, and brokers say it has been a feeding frenzy from out-of-state companies looking for locations in the Metroplex.
What do all of these relocations do for DFW in practice?
Some new HQs come with new jobs created, new commercial real estate absorption or other direct economic benefits. But not all do.
CBRE, for example, is not opening a new office in DFW or hiring more employees in the metro; it just renamed its existing Dallas office as its U.S. headquarters.
"This is really more of a publicity play than anything," WhiteBox Real Estate's Pruitt said. "Much of the C-suite was already here, and they had a huge presence already. Might be a few more critical staff that come to DFW. The big thing going forward will be hiring new staff and building an upper management team, much of which could live in DFW."
But Pruitt and ESRP Executive Managing Director of Site Selection Susan Arledge said when a firm does relocate from another state with employees — much like Toyota did several years back — there is a big boon for the area.
There are two economic impacts from relocating headquarters, Arledge said.
"The first is for a one-time, initial capital investment of machinery and equipment associated with the construction of the proposed headquarters and includes combined state and local tax revenues including revenues from retail sales taxes, other indirect and induced taxable sales, and non-tax revenues for licenses, fees, fines, etc." Arledge said.
The second impact comes from annual reoccurring expenses and economic momentum produced through job creation and salaries.
But how far those salaries go, and whether it will be far enough for average Texans in the future is an issue that is beginning to emerge in North Texas as home prices rise.
Texas' affordable living edge has kept DFW and the state in the lead in the corporate war games — economic development gurus typically extoll it as a top amenity to attract companies — but that is in jeopardy as home values rise in desirable DFW housing locations.
Everywhere Texans look online, even in small towns at the state border, there are signs and warnings suggesting the state is taking in too many transplants and losing its home affordability.
A report from Bill Fulton of the Rice Kinder Institute for Urban Research noted the general rule is that the ratio between home prices and income should hover around 3:1. But that ratio in DFW rose from 2.9:1 in 2009 to 3.67:1 in 2018.
"If you are coming from a very expensive market and you already own your home or you have enough income, you are still doing pretty well in DFW and Houston," Fulton said. "But one of the things we see is that very gradually, the gap is increasing between incomes and home prices in both Houston and DFW."
The median price of a DFW-area home was $146,697 in October 2010. That has more than doubled in 10 years and reached $303,500 in October 2020, according to data from the Texas A&M University Real Estate Center. While the DFW prices are much steeper today, they still remain affordable when compared to California's October statewide median home price of $711,300, which is up 17.5% from the previous October, according to data from the California Association of Realtors.
Fulton notes there is still plenty of land, rising prices and cost competitiveness when comparing Texas real estate markets like DFW to the East Coast and West Coast, but middle-class employees are having to go farther away from the traditional DFW suburbs — maybe even sacrificing some of their lifestyle benefits — to access affordable housing.
"I think lower down the income scale, the harder it gets," Fulton said. "If you have a household income certainly less than $80K or $100K, then you are going to begin finding trouble finding a home in an area where you would want to live."
Arledge said prices will continue to inflate somewhat, but she believes the DFW value proposition is still there for relocating companies and their employees and will remain for some time.
"I think our median home value prices are going to tick up, but I don't think it's going to be to a point where it's out of balance — not for a while," she said.
CORRECTION, DEC 17, 10:30 A.M. CT: A previous version of this article had the wrong name for the Dallas Regional Chamber. The story has been updated.