Five key factors influencing headquarters decisions

 —  Article by JLL Staff Reporter
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For both fast-growing small companies and established multi-nationals, cost is no longer king in the search for a new corporate headquarters.

As companies across a wide range of industries face limited talent pools, new priorities are reshaping relocation efforts, focusing far more on people than balance sheets.

“Real estate costs were traditionally a major focus in headquarters decisions, with considerably less concern over how a move would affect talent,” says Scott Homa, Senior Vice President and Director of U.S. Office Research at JLL. “But increasingly, that chicken and egg has been reversed. Workforce has become the most important factor in real estate decisions and employers are evaluating potential headquarters locations in light of their ability to help recruit and retain talent.”

Five considerations in headquarters moves

While every company’s requirements will differ, there are some key factors that carry significant weight for today’s firms considering a move.

1. Access to talent

Proximity to skilled talent is the top consideration for most headquarters moves today, according to Homa. This often means locating in urban environments or gateway communities that boast a young, highly educated, tech-savvy workforce.

In Chicago, for example, the generational shift in the workforce has helped inspired more than 30 corporate headquarter relocations out of the suburbs and into the city, where Millennial employees enjoy a work-live-play lifestyle.

“Companies are looking at how certain markets will help boost their pool of potential job applicants,” says Homa. “A higher priced lease might be justified by the boost in productivity that can come with winning over top-quality talent.”

2. Proximity to customers and influencers

Even video conferencing can’t replace the relationship-boosting benefits of mixing in the same circles as clients and industry insiders. Consider, for example, a government contractor, where it makes good business sense for its executives and sales staff to be located in the Washington, D.C metro region. Over the past decade, Northrop Grumman, Computer Sciences Corporation (CSC) and Science Applications International Corporation (SAIC) have all moved their headquarters to the government’s doorstep in Northern Virginia. “Those examples are evident elsewhere,” says Homa. “In Nashville, for one, the bustling healthcare market creates a halo effect for related businesses, including the various technology companies and service providers needed to support this large industry.”

3. Global transit links, with local transit options

As good connectivity becomes more important for global organizations, cities with strong transit infrastructure are attracting higher concentrations of corporate headquarters. Dallas and Atlanta, for example, are just two of those seeing increased interest, thanks in part to their major international airports. Among other reasons, Nestle USA touted access to the Washington, DC region’s three airports, and direct flights to its headquarters in Switzerland, as a motive for relocating to Arlington, VA. Local transit is another consideration gaining prominence. As younger generations rely less on cars, corporate tenants increasingly prefer cities with strong public transit systems. New York City, for example, wins on both global and local infrastructure levels, with three major airports nearby, ample rail, and efficient public transit systems to help move the workforce in and out.

4. Local incentives or tax breaks

Across the U.S., state and local governments are increasingly aiming to sweeten the deal for prospective headquarters relocations. Austin, Texas, for example, has inspired something of a mass exodus from Silicon Valley. Roughly two dozen tech companies from the Bay Area have traded Silicon Valley and its steep costs of living for the “Silicon Hills,” where residents pay no state income taxes and businesses enjoy attractive government tax breaks.

“There’s been something of an arms race for local tax incentives,” says Homa. “Many jurisdictions are promising companies incentives like grants, tax credits per job added to market, or special infrastructure investments.”

5. Employee experience

Once a relocation team has narrowed down its list of preferred markets, it is also likely to consider locations with walkable amenities that offer a sense of place and cohesive community within that larger setting, such as fitness centers, plentiful dining options and bars where employees can relax together after hours. A company might choose one neighborhood over another based on where employees would rather spend time outside the office, and reap rewards by limiting travel time employees spend by venturing away from campus.

Looking ahead at future relocations

Big data and analytics are making it easier for corporate leaders to pinpoint the many pros and cons of any given location to ensure that a new company headquarters meets their specific requirements for both people and place.

“Companies are increasingly reevaluating their conventional thinking regarding headquarters decisions,” concludes Homa. “Given that real estate is typically the second largest expense on a company’s income statement, and relocations can have broad implications relative to employee recruitment, sales efforts and tax exposure, it’s critical to get these decisions right.

“Uprooting a corporate headquarters in particular has significant out-of-pocket impact, both in terms of capital outlay and personnel time, yet with all the data and tools available to today’s companies they can ensure it’s time and money well spent.”

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