Corporate Relocations Are Up, But Experts Paint a Complex Picture

August 10, 2023

A special report on city centers, suburbs and gateways around the country.

GE’s move to its “Innovation Point” headquarters in Boston was emblematic of a corporate return to cities. Nearly a decade later, things may be changing. Image courtesy of General Electric

Corporate relocations are at a seven-year high, according to HireAHelper, an online platform that curates websites and information from movers across the U.S. Some 9 percent of corporations in the U.S. “moved their headquarters within the past fiscal year,” the highest percentage since the 2016-2017 fiscal year, according to a report published by the company. There has been a consistent rise in such relocations since 2020-2021, when the figure was 6.8 percent. Post-pandemic, it climbed to eight percent for 2021-22 and to 8.9 percent for 2022-2023.

The report, which cited data from the U.S. Securities and Exchange Commission, noted that business hubs such as New York State and Washington State are among the most prominent locales losing headquarters, registering 83 and 51 percent losses. Florida and Texas, meanwhile, saw the most corporate move-ins at 86 percent and 71 percent.

However, this hardly spells out catastrophe for traditional gateway markets. “While headlines may suggest long-term challenges for larger, established gateway markets, the reality is often more nuanced,” said Darin Mellott, vice president of capital markets research at CBRE.

“While there may be issues that need to be addressed, these markets still have significant infrastructure and concentrations of human capital that will support economic dynamics and commercial real estate demand for the foreseeable future, despite the challenges they face in the post-pandemic period. However, we will likely see some secondary markets continue to attract and retain talent, which may allow them to solidify their position as top markets in the country,” Mellott continued.

There might have even been a slowdown in these relocations in the first half of the year, according to Andrew Matheny, research manager, research & investment analytics at Transwestern in Dallas.

“It does seem like the larger office corporate relocations have kind of cooled down a bit,” said Matheny. “Part of that is probably just because office requirements themselves are much lower with remote and hybrid work, but also because CEOs, specifically, are really focused on what the economy is going to look like in the next 12 months. Higher interest rates may make a big, capital-intensive process of relocating a little bit less enticing.”

Walkable towns appeal to ex-urbanites

Conventional wisdom a decade ago suggested that offices in the city centers that saw an exodus in the 1970s were back, replacing the drab suburban corporate campuses of the postwar years with new Millennial-focused headquarters based in major cities.

General Electric’s 1974 move from New York City to Fairfield, Conn., was symbolic of the corporate flight from cities in the early 1970s and, over four decades later, of the trend’s reversal. The company moved to Boston in 2016. However, Mellot warns that such a simplistic view of the past half-century of office relocations—and what it means for today’s market—can be misleading.

“The reality is often more nuanced than what the headlines suggest,” noted Mellott. “Even in the 2010s, the suburbs were not doing as poorly as some headlines indicated then. There are always ebbs and flows with regard to urban and suburban dynamics, and the same holds true today.”

Matheny noted that there is indeed a trend toward centering companies and offices in suburbs and small cities, but it has been exaggerated in scope. “It is happening, but it has been a little bit overhyped in the sense that there’s not been this exodus of companies from the city centers out to the suburbs,” he observed.

“We see a continuation of pre-pandemic trend of companies, they move out to the suburbs because that’s where the workers are, so they want to stay in close proximity to the talent, the labor pool,” Matheny pointed out. “So, you’ll see either the big company move out or, more commonly, you’ll see the hub-and-spoke model where they’ll keep the urban office, maybe smaller, but keep it there for the people that live closer to, and in, the city, and then open up a satellite office in the suburbs that can attract workers out there.”

And just as it may be too early to write off urban downtown financial hubs and central business districts, it is definitely too early to write off their influence. Where young urbanites seek to relocate, their urban sensibilities are informing the layout.

“The demand for walkability, even in the suburbs, is there,” said Matheny of younger workers in suburbs and small cities. “They do not really want the traditional suburban campus, which is an office building that’s by itself, surrounded by parking. They really want an urban experience in the suburbs. That leads me to believe this is the continuation trend we saw before, of companies following the workforce, but it has not been any sort of rejection of an urban environment per se.”

The old-fashioned corporate campus, meanwhile, is struggling, Matheny said. “If we look at how suburban offices are performing, especially corporate offices, those types of campuses, those islands next to a highway, not a lot of retail around it—that submarket here in Dallas is probably struggling just because they tended to be back-office functions that have been most impacted by remote work.”

However, such assets are also unattractive to modern employees. “It’s hard for companies to really have a demand for that type of real estate given what employees are expecting in terms of amenities.”

Various macro factors, including but not exclusive to economics, are also variables when it comes to considering corporate, as well as personal, relocation, said Mark Zandi, chief economist at Moody’s Analytics. Meanwhile, the generation that was lured to the urban office towers of the 2010s are in pre-middle age and trickling out of their various metropolises.

“The aging of the large Millennial generation into their 30s and 40s, when they are raising families, favors suburban living,” Zandi noted. “Deglobalization likely means less international travel and investment, which mostly occurs in global urban centers. Crime and homelessness and weakened city budgets only reinforces these dynamics, causing households and businesses to relocate.”

This doesn’t necessarily spell catastrophe for urban centers, however. “Of course, cities will adjust,” said Zandi. “As property prices decline, developers will figure out ways to effectively use the currently vacant space, and the cost of living and operating in the cities will become more competitive again. Real estate developers are highly creative and will ultimately figure it out.”

Sun Belt trend preceded pandemic

Residential migrations are a key factor driving corporate moves to Sun Belt states, but that was the case long before the pandemic. Meanwhile, major gateway markets may be more secure than recent relocation trends imply.

Matheny identified post-pandemic corporate relocations as largely a continuation of a long-term pattern that preceded COVID-19. “In 2021, ’23, ’23, Dallas and other Sun Belt markets saw really a continuation of the same trend that was happening pre-pandemic of companies migrating to the Sun Belt and they’re moving here for the same reasons that people that move here,” he noted. “A lot of these states don’t have income taxes, there’s a lower cost of living, lower cost of doing business. In some of these markets, you have better workforce availability and workforce growth, which companies find attractive.”

The Sun Belt has been attracting corporate headquarters for years, observed Matheny. “That’s a trend that has long been in place just due to overall migration.”

“For Dallas, it’s been going on for 15-plus years, going back to major companies moving here, like <strong”>American Airlines coming here from New York, back in the ’70s, and Toyota North America coming here from California back in the 2010s,” said Matheny. Toyota North America settled in Plano, Texas, which he notes as an example of a small city with urban sensibilities.

“I don’t think there was a major shift of corporate headquarters as a result of the pandemic. If you think about what the impact of remote hybrid work will be on corporate footprints in the next five to 10 years, it may actually create a little bit of an incentive for companies to stay in some of these gateway markets because they won’t have as much of a need for office space.”

“Just as predictions of the end of the suburbs in the 2010s proved to be wrong, I believe that many of the predictions of the end of downtown areas will also be proven wrong,” agreed Mellott. “In terms of what’s driving these trends, I don’t believe that the main drivers are all that different. Office demand will follow talent, so areas that attract talent will see increased demand. The large concentrations of talent in major metropolitan areas will continue to underpin demand in those markets going into the future.”