Corporate Relocation Activity Picking Up As Business Confidence Rises
Major Companies Ponder HQ Relocation Weighing Such Factors as Consolidation to Changing Work Forces and Economics Seeking Productivity and Efficiency Gains.
As business confidence in the economic recovery deepens, corporate c-suites are at least thinking about when and where to expand their operations.
Although the evidence is largely anecdotal so far, commercial real estate brokers and corporate site selection consultants tell CoStar they’ve noticed a general increase in the number of corporate expansions and headquarters relocations after sitting on their hands through the recession and early recovery.
Prompted by a variety of motives ranging from cost-cutting consolidation stemming from mergers and acquisitions, to seeking big tax incentive packages from states and local government, to intense competitive in the recruitment of talented employees, companies seem more willing in recent months to consider expansion and relocation as an alternative, both within and outside their current real estate footprints. Cases in point include Hertz’s planned relocation of its headquarters from New Jersey to Florida, MetLife’s consolidation of facilities across the country into Charlotte and Raleigh-Durham, N.C.; and Google’s purchase and relocation of Motorola Mobility from Libertyville, IL in suburban Chicago to the downtown Merchandise Mart.
Although corporate headquarters relocations remain a relatively small portion of total relocation and expansion activity, “because there is increased activity in all expansion/relocation projects throughout the U.S., there has been a slight increase in headquarters related activity,” said Kathy Mussio, managing partner with Atlas Insight, LLC, who has focused on securing incentives and tax credits for development and expansion projects since the late 1990s.
“Compared to 2008-2011, there is a marked uptick in all project activity,” Mussio said.
To be sure, consolidation and the related quest for cost savings and efficiency is still the primary driver behind most large corporate relocations. Due to the complexity of such moves, headquarters relocations are typically “once or twice in the lifetime of a corporation” types of events, often announced a year or more ahead of the actual move, she said.
Moving to lower-cost locations or moving to avoid high taxation or to escape an unfavorable regulatory climate factors prominently in these decisions. “That said, corporate headquarters relocations are quite costly, with one-time non-reoccurring costs, and they do have a business disruption element,” said Mussio. “The same can be said about entering into a corporate headquarters relocation project as entering a marriage — ‘not by any to be entered into unadvisedly or lightly,” and not without careful thought and a deep and detailed analysis, she said.
Eric Stavriotis, managing director and head of the corporate relocation team with Jones Lang LaSalle in Chicago, said his conversations with corporate clients have shifted over the last year, with companies previously focused more defensively on cost control now cautiously considering expansion.
“In the last 12 months. We’ve seen more projects that are focused on deploying new capital and growth, whether it’s a relocation, expansion, even just a reset of the overall corporate footprint,” Stavriotis said. “We predict more headquarters projects in the next five to10 years than we saw in the previous five to 10 years.”
Until recently, negative factors such as the need to cut costs and preserve capital — for example, by cutting the amount of office space leased per employee — have driven most headquarters expansion or relocation decisions.
“But lately, we’ve seen more of an increase in positive demand drivers, such as searching for talent, and that’s resulted in more activity,” Stavriotis said. “Many companies who located their headquarters 10 or 20 years ago were very unlikely to make a headquarters move during the recession. But after 10, 15 years, and in some cases even 50 years in the same headquarters location, there can be a huge change in the type of talent that an organization needs in order to be successful. Often, talent has migrated to different parts of the country, and it begs the question: has that headquarters location kept up with the needs of the business? With the recession finally ended, a lot of companies are starting to look at that,” Stavriotis said.
“There’s a whole slew of projects coming from different motivations, but in the end it’s resulting in a little bit more activity. That’s good news for everybody.”
Collaborative work spaces and technology that allows mobile employees to work from anywhere can allow companies to “hotel” and “hot desk” office employees, reducing a company’s total space requirement. The average square feet per employee has dropped dramatically in the last 10 years in the U.S., from around 250 square feet to as little as 125 square feet.
While some companies may be able to shrink their office occupancy and avoid relocation, others may need to move to newer, more collaborative work environments to keep attract and retain talented young workers, especially in the creative arts and high-tech sectors, according to Stavriotis.
“That’s the reason we’ve seen a lot of companies migrate headquarters or key facilities from big suburban campuses to urban core locations downtown, where they can continue to attract and retain that talent pool,” Stavriotis said. Just such a positive demand driver prompted Motorola Mobility to relocate from its longtime headquarters in the suburbs to the downtown Merchandise Mart after Google purchased the tech company last year.
Google wanted to attract younger knowledge-based workers who generally prefer to live and work in the urban core, he said. While the downtown space is more expensive, the company was able to both cut its space per employee by as much as half and increase efficiency while getting access to better talent.
In a sign of rising confidence in the direction of the economy, corporate clients have been less reluctant over the last six months to consider expansion or investment outside their current real estate when it makes sense, Stavriotis said. Previously, clients would usually choose an existing location for such an investment, even if Stavriotis and his team could demonstrate that a new location could cut labor, utility or supply chains costs, or improve access to workforce talent.
“Even if all of these things were screaming opportunity, the client was still very risk adverse and would say ‘it’s a great opportunity, but if we can spend a little less by putting it in an existing facility, we’ll do that,’” Stavriotis said. “Talking to clients, we’ve seen perhaps that trend is starting to turn — companies aren’t as risk adverse as they were for the previous five years. Maybe they’re getting over the hangover from the recession and starting to seriously evaluate new green field markets, and we may see more of those deals in the next couple of years.”
If a company can take advantage of lucrative state and local incentive packages to help defray headquarters moving costs, now could be the right time in the cycle to make a move, with property prices on existing property rising and low interest rates and cheap financing spurring new build-to-suit and speculative development, Stavriotis said.
“Relocation depends on a number of factors and where the company is in its own life cycle. But for the right set of companies, there are now a significant amount of demand drivers.”
Manufacturers in particular need to consider the possibility that moving to an area with lower taxes, less regulation and a friendlier business environment may provide a competitive edge against rivals, Mussio and Stavriotus said. Some are also relocating international and domestic operations and headquarters in hopes of bringing efficiency to their supply chains and moving closer to their customer bases.
One such company is, Lollicup USA, Inc., a food product manufacturer, retailer and specialty beverage supplier of coffee, tea and boba, which recently announced the expansion and the relocation of its U.S. headquarters from 140,000 square feet in separate locations in Walnut and Industry in Los Angeles County to Chino, CA. Lollicup is moving into a 300,000-square-foot facility nearing construction completion at 6185 Kimball Ave. which will also house Lollicup’s new manufacturing facility and Southern California distribution center.
In addition to its Southern California headquarters, the company operates facilities in Summerville, SC, and Seattle. The relocation is also part of the growing trend in re-shoring overseas manufacturing back to the U.S. Many companies seeking higher quality and faster turnaround are moving operations back to the United States, the largest example being Apple moving production of a line of Macintosh computers from Asia to Texas.
Lollicup will “re-shore” its manufacturing facility for paper and plastic disposable goods from Asia to California “to shorten our customers’ lead times and to meet increased demand for our products,” said Alan Yu, president and CEO.
San Bernardino County economic development agency administrator Kelly Reenders said companies are increasingly moving back to the U.S. to be closer to their customer base, reduce transportation cost and prevent disruptions to their supply chains.
Chino’s location at the intersection of four major Southern California counties “will put Lollicup in a prime position to reach millions of customers and more efficiently grow and service its client base,” Reenders said.
While the Inland Empire has long been a warehouse and distribution powerhouse, “we’re now starting to see more industrial demand on the manufacturing side. What those corporate real estate and site selectors tell us being close to labor and their marketplaces is really important.”
Source: CoStar Randyl Drummer May 22, 2013