By Meghan Hall
In recent months, a number of major companies in the Bay Area have announced their departures, setting their sites for expansion or a new headquarters outside of Northern California. How such relocations will ultimately impact the local economy and the commercial real estate industry remains unclear, but San Jose Mayor Sam Liccardo came to the defense of one of the region’s most frequently cited scapegoats surrounding the issue: Big Tech. While major technology firms have greatly influenced the expansion and development of the region, Liccardo maintained at a webinar hosted by the Bay Area Council that there are a number of other major factors prompting companies to move.
“This is stuff that has been building for years,” said Liccardo. “…Those of us who recognize that technology has been the life blood of our economy, and in many ways our community, for decades here, are a little frustrated that suddenly folks have discovered all of these problems and that tech should be to blame for all of them.”
Hewlett Packard Enterprises, a company with a storied legacy in Silicon Valley, has announced plans to move its headquarters to Austin, Texas. Others, such as Oracle, Tesla, Alliant and Palantir have planned relocations as well.
According to Liccardo, there are a number of reasons companies are moving, reasons which are not at all new. Regulatory policies from privacy bills to Proposition 65, to concerns about new tax proposal and energy infrastructure are just a few of the factors influencing companies to look outside the region. Perhaps chief among these factors, however, is the ever-increasing cost of housing and the difficulty around keeping employees in Northern California. While the Bay Area maintains an edge in high-tech employment, companies are moving headquarters and outsourcing positions that can be found anywhere.
“…They recognize that they can hire administrative staff elsewhere…That’s not talent that is unique here; it can be found anywhere,” noted Liccardo. “Housing costs driving folks out to markets where we don’t have competitive advantage.”
With particular regard to development within the Bay Area, there are four factors that have made the market so tight: land, labor, litigation and local control. While many companies in the region do strive to build, available land for development is increasingly tight, and contracts with unions—which Liccardo generally supports but acknowledged is an arrangement not without its flaws—can stall projects, quickly driving up the price of development. NIMBYISM is a viable challenge to any project—particularly those of scale—in suburban or bedroom communities long-used to limited development. CEQA, a well-intentioned effort to evaluate the environmental impact of development projects, is frequently leveraged to stall projects in the name of other goals. In an example given by Liccardo, the VTA recently spent more than $1 million defending one of its project from a CEQA suit filed by the San Jose Sharks, who wished for more parking.
“The reality is each of our local communities is [to blame],” stated Liccardo. “…Our obsession with local control is killing us in the Bay Area, and it is preventing the ability of builders to get out there to build density…That is a huge challenge.”
For local economies, the impacts will be felt as sales tax revenue goes to other states. Often, added Liccardo, when headquarters move, philanthropic interests and involvement will follow. Longer-term, the region could become a talent drain for executive leadership as companies move, and younger innovators and entrepreneurs could choose to plant their roots—and start-ups—elsewhere if barriers to entry within the Bay Area remain too high.
During the call, the Bay Area Council also noted that the region has seen a reduction in its share of venture capital funding, which dipped below 30 percent for the first time and could impact the region’s underlying innovation ecosystem, typically one of its biggest economic drivers.
“I don’t think that the sky is falling, but the clouds are darkening,” said Liccardo, who emphasized that the Bay Area has had it so good for so long. “…We are not going to have such a privileged place forever, so we are going to have to hustle a lot harder.”
The solution moving ahead is far from straight-forward. Liccardo recognized that markets like San Jose and Silicon Valley are becoming inhibited by its suburban model of development.
“So, we are engaged in the very difficult work of retrofitting a city that was built for automobiles into a city built for people,” said Liccardo. “That means a lot more density…and I think we have a growing sense that people want to move into that future…”
Keeping major companies and tech firms engaged civically will also continue to be of critical importance. When it comes to solving issues like the housing affordability crisis, private sector solutions will become key. Currently, Santa Clara County has 10,000 unhoused residents, and with the cost to build an apartment at about $700,000 per unit, the County has a “$7 billion problem to solve,” said Liccardo. That cost makes it almost impossible for cities and jurisdictions to address the issue alone.
“The folks who are going to get hurt are the ones who can least afford the impact,” added the Bay Area Council President and CEO Jim Wunderman. “…We need to get the business community back to the table…to figure out how to participate civically in the future of the state and local government in the ways the business community historically did.”
While companies leaving the Bay Area may not be the end of the region, it has the potential to dampen its economic vitality in the coming years. Solid commitments by both public officials and the business community will be necessary to establishing trust and briging conversations to the table long-term.
“[In the future], I think we are probably going to be moving at the speed of trust,” said Liccardo.