Commercial real estate is only as good as its geography. So, the importance of being located in the right spot can never be overstated.
As tenant reps, we have seen how geography alone has influenced the overall budget of our corporate clients. The optimal city or state can bring on a windfall of savings. But, the wrong spot? Well, it could cost you millions more over a lease term.
So, don’t waste any more time and money. Instead, learn where the best spot for your business is now. We'll discuss the pros and cons of a corporate Californian location to empower you to make the best decisions for your CRE portfolio. That way, you will have all the information you need to decide whether it is the most optimal location for your commercial real estate.
Pros of Locating Your Business in California
California is one of our country’s most popular states for a reason. It provides prestige, access to America’s tech and entertainment capital, stunning natural sceneries, and attractive weather year-round. For the right business, it could be a match made in heaven. So let’s dive deeper into the pros of locating your business in California.
Nation’s Largest Economy
Locating your business in California can be an invaluable asset for companies worldwide. Why? It is home to the nation’s largest economy. On an international stage, it has the fifth most significant GDP.
The Golden State boasts a highly active industry sphere. From agriculture to film production, STEM advancements to tourism, California’s economy is backed by solid foundations. It also provides access to a robust manufacturing and life sciences presence. No matter your specialty, you can likely find your niche in this state.
California also possesses the title for the most populous state, with 39 million people. This is a massive market that holds incredible opportunities. To put it into perspective, professional sports alone in the state are valued at $34 billion!
It is also home to multiple destination cities, highly desirable for tourists and transplants. San Diego, San Francisco, Los Angeles, and other widely recognizable cities are located in California. As a result, Californian commercial real estate is associated with prestige and global connectivity.
Skilled Workers
California's extensive post-secondary education system forges the state as a leader in innovation and development. As such, its labor force is highly skilled and sought after by the corporate sector. Despite the state’s high cost of living, it consistently attracts young talent.
The state is home to nearly 3,000,000 pre- and post-grad students. It is also the source of some of the nation’s most prestigious universities, including Stanford, Berkley, CalTech, and UCLA. California’s university systems earn more than $60 billion in income annually.
Your most valuable asset as an organization is your people. Ensure that you are sourcing the best and brightest talent base by locating yourself in a state like California.
Its highly trained, capable workforce is a corporate recruiter’s dream. Unfortunately, if you aren’t working with it, your competitors are.
Cons of Locating Business in California
Even though California claims some of the most popular cities, these exact locations are (not so coincidentally) the worst cities for business. So let’s look further at why the state could be a nightmare for your business.
High Cost of Living
California is slowly and surely driving away its natives and corporations with skyrocketing prices. As a result, many areas are quickly becoming unsustainable in terms of living and rent expenses. As a whole, the state is nearly 1.5 times more expensive than the national average.
However, the metric becomes even more egregious if you look at metro areas like San Francisco or LA.
San Francisco- 194
Los Angeles- 150
San Francisco is the second most expensive city in the country, following only New York City. This high cost of living influences every part of life, making everything from taxes to real estate more expensive.
Expensive Taxes
California also has one of the county's most expensive corporate income tax rates at 8.84 percent. Multiple states do not even levy a corporate income tax at all. Now, consider what you could save in corporate income taxes alone when you compare almost 9% to 0%. California also currently has one of the highest personal income taxes in the country for the top bracket of earners.
Comparison of business-friendly corporate income tax rates (Houston, Texas and Jacksonville, Florida) vs. business-unfriendly (New York City and San Francisco)
Due to the demand in the supply chain, the higher taxes influence the price of everything else, making it more expensive. You also feel the weight of more expensive gas and payroll costs in addition to the taxes.
Costly Rent
Due to the high cost of living, California’s real estate costs are through the roof. For example, San Francisco Class A office space costs $68 per square foot. You can truly understand how much this is when you compare it to a business-friendly city like Jacksonville, Florida.
Unfavorable Business Environment
Californian businesses deals with more red tape than anywhere else in the country. From elevated prices to intricate regulations, companies suffer from :
- Higher cost of living
- Higher payroll costs
- Rising price tags for business costs, including electric, utilities, taxes, etc
- Extreme regulatory policies
- Expensive and complicated litigation
- Worker’s comp issues
In fact, manufacturers in California receive treatment more similar to foreign manufacturers than homebound companies. They are victims of extreme costs, more severe than some oversea producers.
In addition, California implements complicated environmental policies and costly workers' compensation for businesses. Similarly, corporate tax rates are highly adverse to companies trying to stay afloat. For instance, the Golden State is one of only several areas to levy a tax on purchasing capital equipment.
All in all, it is a prospective nightmare for corporate success.
The Corporate Exodus Away From California Has Already Begun
Companies are moving out of California in record numbers. The culture has changed and unleashed a corporate exodus that has no end in sight.
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Organizations have realized that California is not worth its inflated expenses and prohibitive regulations. |
It is far more feasible to seek out business-friendly areas that foster corporate growth and affordability.
California is gradually losing its game-changers. Huge names from Tesla to Oracle have already moved to states like Texas that offer much more pro-business regulatory environments. Relocations away from California more than doubled in the first half of 2021.
If you are considering moving to California, you may be too late. Unless extensive policy reforms are implemented, it is unlikely that the business sector will return to its top-performing state.
Is California Right for Your Business?
California’s economic environment is one of the most robust in the country. It also provides access to one of the strongest talent pools. However, its elevated expenses, complicated regulations, and the impending corporate migration away may counteract any benefits it provides.
If you are located in this state, you have options. Numerous business-friendly states offer more reasonable costs and favorable regulations. If you are interested in relocation, you can work with a tenant rep. They can help you make your most optimal real estate decisions, whether California is or isn’t right.
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