Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
I’ve been saying for years that the state one lives and works in will become of greater importance in the future. I’ve been saying to expect a mass migration out of over-taxed and over-governed states. The so-called coronavirus pandemic has only served to expedite this process.
And now the migration of California is real and historic.
In just the past few months, Hewlett Packard Enterprise Co. said it was leaving for Houston.
Oracle Corp. said it would decamp for Austin.
Palantir Technologies Inc., Charles Schwab Corp. and McKesson Corp. are all bound for greener pastures.
Elon Musk has had enough. He thinks regulators have grown “complacent” and “entitled” about the state’s world-class tech companies.
San Francisco
No doubt, he has a point. In recent years, San Francisco has seemed to be begging for companies to leave.
In addition to familiar failures of governance — widespread homelessness, inadequate transit, soaring property crime — it has also caused problems with over-governance.
Far from welcoming experimentation, it has sought to undermine or stamp out home-rental services, food-delivery apps, ride-hailing firms, electric-scooter companies, facial-recognition technology, delivery robots and more, even as the pioneers in each of those fields attempted to set up shop in the city.
It tried to ban corporate cafeterias — a major tech-industry perk — on the not-so-sound theory that this would protect local restaurants.
It created an “Office of Emerging Technology” that will only grant permission to test new products if they’re deemed, in a city bureaucrat’s view, to provide a “net common good.”
These two traits — poor governance and animosity toward business — have decimated the city’s housing market.
Even as officials offered tax breaks for tech companies to headquarter themselves downtown, they mostly refused to lift residential height limits, modify zoning rules or allow significant new construction to accommodate the influx of new workers.
They then expressed shock that rents and home prices were soaring — and blamed the tech companies.
The State of California is even worse
California’s legislature has only made matters worse. A bill it enacted in 2019, intended to protect gig workers, threatened to undo the business models of some of the state’s biggest tech companies until voters granted them a reprieve in a November referendum.
An 8.8% state corporate tax rate and 13.3% top income-tax rate (the nation’s highest) haven’t helped.
New York City is just as bad
Of course, California isn’t alone in squandering such advantages. New York City has been the world’s top finance hub for many years, and increasingly had become home to a thriving tech community as well.
But a similar blend of poor policy choices, high taxes, needless red tape, rising crime, and occasional outright hostility — as with the senseless opposition to Amazon.com Inc.’s proposed headquarters — has been pushing both industries to friendlier states in recent years.
Conclusion
For now, the Bay Area is unlikely to be displaced as the nation’s top tech hub. After all, it’s still home to some of the world’s most valuable companies, draws an outsized share of venture-capital investment, and remains an unrivaled incubator for startups. And predictions of Silicon Valley’s demise have proved reliably wrong for decades.
Even so, no state can antagonize its companies so extravagantly and expect them to stay put forever.
It’s now crystal clear…the states of California, New York, Illinois and others are in a death spiral. As their tax base leaves…they’ll have no choice but to raise taxes even further on the poor souls who stay.
Once a state heads into a downward trajectory like that…there are very few levers to pull to stop the pain. It’s only going to get worse folks.
The biggest winners will be conservative states like Tennessee, Texas, North Carolina, Florida and others. In those well-governed states the future has never been brighter.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, entrepreneur and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and Florida markets.
He’s earned the revered “CCIM” designation which is awarded to the top 6% of all commercial real estate brokers.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com