We are seeing it more and more nowadays: big companies relocating their corporate headquarters. Some are moving from cities to suburbs and others are moving to completely new parts of the country. The proverbial ripple effect caused by corporations uprooting their operations can have tremendous impacts on businesses, communities, and individuals alike. So what are the reasons that come into play when making a decision that can have seismic implications? Continue reading to learn about 4 things businesses should consider when deciding to relocate or open an office in a new market.
Cost of office space
Some growing businesses may find expenses associated with city-center real estate too much to handle. For example, start-ups tend to begin small and then look to grow into bigger and better-equipped spaces. But as the companies get larger, there are often fewer cost-effective options available in dense urban areas. In addition, expansion or facility upgrades in these areas may be cost prohibitive. Issues like these have businesses moving to the outskirts of cities. Rent in suburban office parks will be significantly lower, and space will be more abundant. Some larger corporations are even looking at cost of real estate with the intent to build their own campuses from the ground up. When doing so, they look to find a happy medium between land cost and proximity to the city. The connectivity created by technology is making it easier to move further out from the city centers as well. In-person business interactions are less critical than they used to be.
Access to talent
Depending on the product or service a business provides, access to talent may be an issue. Take Amazon, for example; one of the criteria on their list for HQ2 bids from cities was proximity to colleges and universities. This provides a talent-rich pool of lower-cost entry-level employees who are highly skilled and educated. In addition to entry level, you need access to more seasoned professionals. If it is a tech company, a city with pre-existing tech companies is preferred over a city without because it will have a built-in population of these more experienced professionals. Another thing to consider is city population growth. Emerging secondary markets like Austin or Charlotte have young professionals migrating to them in droves.
Proximity to target markets
What is being sold and who is it being sold to? For many businesses, the current location may not provide the necessary opportunities to support growth, or the market might not be sophisticated enough to meet the needs of the business. Whether it is B2B or B2C, the product or service may be better suited to an area where the demographics will provide enough demand to support growth goals.
Incentives and tax breaks
As a way for states to attract corporations, many offer incentive programs. Job creation has a massive impact on states, and when large corporations put down roots somewhere, smaller businesses tend to follow. Landing one big business could have an exponential impact on the economy of the city and state. Some examples of these program are below:
- South Carolina has a 20% credit against corporate income liability, based on the cost of the portion of the facility dedicated to headquarters operation or direct lease costs for the first five years of operation.
- Florida’s discretionary grant funding may be available so long as 50 jobs are created in a three-year period and an investment of at least $50 million is made.
- Tennessee provides a refundable tax credit for relocation expenses resulting from a move. The credit can be used to offset franchise or excise tax liability in the year earned. If liability is less than the credit, the difference is refunded in cash.
Whether a business is considering relocating 5 miles down the road or across the country, these decisions are not to be made lightly. There are both business implications and human capital factors at play. But the benefits a company obtains if they make the right relocation choice can increase revenue growth and improve employee satisfaction.
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