Bay Watch: A Weekly Look into the Bay Area Economy
August 9th, 2024
With a new wave of corporate relocation announcements in recent weeks—including the Chevron and SpaceX moves to Texas—the concept of a California business exodus is again in the headlines. While these moves out of the state have created a rallying point for civic leaders, their actual economic implications are not well understood.
The San Francisco Standard attempted to tackle this question in an August 8, 2024 article under the headline: Tech exodus looks bad for SF—but the doomsayers are wrong about the reasons. While the article juxtaposes the string of recent corporate relocations out of the Bay Area with the region’s continued relative strength in tech and innovation, it fails to cite any actual data points and relies on interviews and anecdotes only.
We would agree that the Bay Area remains the leader in global innovation across many metrics, including venture capital and tech talent, but the region’s lead over its competition is shrinking. Corporate relocations are unlikely to be the main cause of this shrinking lead, but they are a symptom of broader business climate challenges that plague the Bay Area and the entire state.
The rise of remote work following the pandemic is often cited as the main reason for the region’s very slow economic rebound. But the pandemic also ushered in a new era of cost-saving strategies across corporate America, and the dispersion and growth of talent across the country has allowed many companies to reassess their geographic footprints, real estate holdings, and headquarters locations. We look at some of these decisions and their meaning for the Bay Area economy within this brief.
A Historical Perspective on HQ Relocations
Headquarters moves are not new in the Bay Area. In 1998, the merger of Bank of America and NationsBank led to San Francisco losing the headquarters of Bank of America to Charlotte. With 25+ years of employment data now recorded, this move provides an interesting case study of the implications of a corporate relocation:
• In 1998, San Francisco County was home to 61,000 jobs in the financial activities sector. That same year, Mecklenburg County (where Charlotte is located) was home to approximately 44,000 jobs in that same sector.
• At the end of 2023, San Francisco’s number of jobs in financial activities had fallen to under 60,000. In Mecklenburg County, the number of jobs in financial activities had more than doubled to just over 100,000.
While there are multiple factors that play into the divergent growth in finance in San Francisco and Charlotte, the move of Bank of America shows a clear turning point—the finance sector in San Francisco plateaued, while Charlotte overtook San Francisco in terms of total employment in the sector less than a decade after the merger.
The Different Flavors of HQ Moves
When looking at more recent examples, it becomes obvious that corporate relocations are done for many reasons—sometimes they are purely economic, while other times they are driven by executive preference. Some companies eventually will close locations and consolidate talent around a new headquarters, while others use the headquarters for purely administrative purposes.
Given that every relocation is different, we would argue that tracking jobs is much more important that tracking the companies themselves. It is the jobs connected to these companies that drive multiplier effects, agglomeration, and growth of industry clusters. As such, we have compiled job posting data from multiple Bay Area companies that have recently made headlines for their headquarters moves. The chart below depicts job postings based on geography for HPE, Tesla, Charles Schwab, and Snowflake.
These four companies represent some of the highest profile corporate relocations of 2020 and 2021. To understand the moves’ impacts on jobs, we have taken unique postings from two 24-month periods: 2017 to 2019 and 2022 to 2024. In looking at each period, we find that California-based hiring has remained robust for these companies even after the headquarters moved out of state. However, the share of new jobs being placed within the state has fallen in three of the four examples. The fourth example, Charles Schwab, is unique in that the company was already hiring more rapidly in Texas than its home state even before the announced move.
The Bay Area Economy Continues to Falter
Individually, these headquarters moves are interesting to dissect, but each one likely does not significantly alter the region’s jobs numbers. But we now have multiple years and many examples of companies either relocating altogether or looking outside of the Bay Area for their future growth. The reasons for this are clear: a high cost of living and a high cost of doing business are outweighing the benefits that the Bay Area provides.
This trend is now playing out in our employment data. When looking at the last two years, the nine-county Bay Area has struggled to meaningfully grow its employment base. Concerningly, our once dominant industries—tech and professional services—are the industries where job loss has been greatest. While the region has added jobs in aggregate in the last two years, those jobs have been in local-serving industries only.
We can also show that we are losing ground to other geographies in terms of jobs in knowledge sectors (i.e., finance, information, and professional services)—which tend to have higher multiplier effects and can drive population expansion. While California cities have produced the worst job performance in these sectors over the last two years, lower cost locations in Texas and Florida have risen to the top of the list.
California-based Companies Have Shifted Hiring Preferences
Corporate relocations are not the only cause of the region’s poor economic performance in the last 24 months, but they are a symptom of the underlying factors that are pushing companies to reconsider their investments in California and the Bay Area. Whether or not there are more relocations on the horizon, we can identify hiring trends that are moving in the wrong direction for many of the largest companies still headquartered in California. While the group of Fortune 1000 employers continues to hire in California, they are increasingly looking outside of the state for their workers. Our largest firms are now hiring for just 25% of their open positions within the state, down from 33% prior to the pandemic.
If this trend plays out over many years, we will see the economic competitiveness of California and the Bay Area continue to erode. It is very easy to point to our venture capital percentages, the number of large companies headquartered here, and the concentration of tech talent living in our region to conclude that the economy remains strong and robust. And while it is correct to say our region and state remain economic leaders, that conclusion ignores the many warning signs that we see in recent employment data, job posting trends, and corporate relocation announcements.