Texas has become a magnet for corporate relocations in recent years, and remarkably, that trend has not slowed because of the coronavirus pandemic. Since 2005, more than 200 companies have opted to relocate their corporate headquarters to Texas, according to YTexas, a business network that assists companies who are looking to expand or relocate to Texas.
At least 20 of those HQ relocations have occurred in 2020, a year defined by a global pandemic, a tumultuous energy market and economic uncertainty. Overall, the state had 196 active expansion or relocation projects in the pipeline as of September.
Many of the noise-making relocation or expansion deals this year have headed to Austin or Dallas, creating the impression that Houston is not drawing the same level of interest. But with at least 17 new economic development projects signed in the middle of the pandemic, Houston is gaining more ground than people think.
ESRP’s Susan Arledge, executive managing director of site selection, told Bisnow that Texas’ business-friendly environment, including significantly lower taxes, is playing a big role in why so many companies are choosing to move.
“When you see them coming from California, when you see them coming from the East Coast, it’s really built around the fact that Texas is back open for business, seems to be doing well, and they’ve got to get away from these taxes,” Arledge said.
Texas has a combined corporate income tax of 21%, tied for the lowest in the U.S., while California is 28% and New Jersey is 29.3%, according to an October study by the Tax Foundation.
One of the biggest names to announce expansion activity in Texas is Tesla, which in July announced that it planned to build a $1.1B new electric vehicle factory in Austin. Last week, real estate firm CBRE announced that it was moving its corporate HQ from Los Angeles to Dallas. And social media company TikTok is reportedly considering Austin for a large corporate office, joining other major technology companies like Facebook, Google and Dell.
Those marquee names have drawn increasing attention to opportunities in Dallas and Austin, but fewer headline-making companies have opted for Houston in recent years. That, in part, is due to Houston’s business environment, which has always been heavily tied to the energy sector and manufacturing.
“Houston is known as an energy town, oil and gas, chemicals. That’s Houston’s identity. And so I think companies that are outside of that realm don’t think of Houston,” Strategic Development Group Vice President Jeannette Goldsmith told Bisnow.
Still, Houston is seeing its own gains in corporate relocations and expansions. Site Selection Magazine named Houston as second in the U.S. for the number of corporate facility deals in 2019 (276), ranked only behind Chicago (416 corporate deals).
When it comes down to choosing a city in Texas, Arledge said companies tend to already have one city in mind when they seek site selection help. That’s a reflection of what benefits they see from the business environment in that city, including the expertise of available labor, cost of living and transportation.
“If you want anybody that’s in the oil industry, related industries or in healthcare — I mean, the healthcare and medical profession in Houston is so strong — you’re going to be more inclined to look at the Houston market,” Arledge said.
Though Houston has attracted fewer head-turning corporate relocations, the city is still continuing to see a steady stream of incoming companies, either moving or expanding their operations.
Susan Davenport, chief economic development officer at the Greater Houston Partnership, told Bisnow Houston has a good track record of attracting relocations from both U.S. and international firms.
“Our project pipeline is as strong today as it was at the beginning of the year, even with this pandemic, and we’ve got a portfolio of leads 140 strong,” Davenport said.
A total of 70 economic development projects came to Houston between the beginning of 2016 and the end of 2019, creating nearly 24,000 new jobs in the city, and generating more than $9.7B in capital investment, according to the Greater Houston Partnership.
The organization told Bisnow that so far, Houston has signed 17 new projects in 2020. Those projects will create more than 1,900 new jobs and are expected to generate more than $2.9B in capital investment. Manufacturing companies make up the highest share, followed by corporate headquarters and business services, digital technology, clean energy, logistics and life sciences.
The future pipeline, with more than 140 prospective leads, represents interest from a variety of industries. Manufacturing continues to dominate at 54%, followed by energy at 13%, technology at 8%, HQ and business services at 7% and both aerospace and life sciences at 4%, respectively.
Goldsmith said the rapid growth of e-commerce will continue to benefit Houston from an expansion standpoint. In her view, the consumer-driven city could see almost limitless growth when it comes to building last-mile facilities for retailers.
“Houston is always going to be a city that makes sense for that, primarily because of the volume of goods that come through the port. And so you’re always going to see the big retailers, Walmart, Target, they’re all going to continue to have logistics space in Houston,” Goldsmith said.
Arledge said that both Houston and Dallas are attractive to her clients, because of their established reputations in distribution, last-mile logistics, e-commerce and manufacturing activities.
“Any company that’s looking to relocate or add distribution and e-commerce operations, those two cities are frequently on the list,” Arledge said.
Davenport said the pandemic has not disrupted the pipeline in a major way, with only one or two prospective projects looking to delay their move and extend timelines.
“I saw one or two, but they did not go away. They just said their timeline was a little bit farther out, but they did not go away, and they’re keeping in close contact,” Davenport said. “So it was really interesting, I thought there would be more of that.”
Houston’s failed bid for Amazon’s HQ2 project was, to some degree, considered a wake-up call for the city. Factors such as public infrastructure, educational institutions, the technology scene and government incentives all contributed to Houston not even making the top 20 shortlist for the project, which was ultimately awarded to Crystal City in Arlington, Virginia.
Davenport joined the Greater Houston Partnership after the bid, and said that the rejection motivated city and business leaders to get moving on more efforts to build out the things that Houston was lacking.
“To put it frankly, I think it was a big catalyst for them,” Davenport said. “It jumpstarted a lot more activity, and kind of sped up the trajectory.”
Since then, a flurry of investment has been poured into Houston’s technology and life sciences sectors, taking form in large-scale projects like The Ion and the surrounding Innovation District in Midtown, as well as TMC3 and Levit Green in the Texas Medical Center.
Between marketing materials, reports, concentrated outreach efforts and mission trips, Davenport said the Greater Houston Partnership has become very aggressive in its efforts to market a more modern, updated picture of where Houston stands today.
“We recognize that people’s vision of Houston is a little outdated,” Davenport said.
Houston is continuing to weather the economic double-whammy of the pandemic and a downturn in crude oil prices, which has led to a wave of bankruptcies, layoffs and furloughs. But efforts over the last decade to diversify the local economy via healthcare, technology and professional services have helped soften the impact of the downturn, and Davenport said a growing emphasis on life sciences, digital technology and clean energy will help update the city’s image as a hub of innovation.
“I think people often see Houston and still think that all that’s here, maybe, is traditional energy,” Davenport said. “We’re proud of what we have here. We always want to be the energy capital of the world. But it’s so much more now.”