Report shows Arizona benefits from California’s exodus of companies, but Tucson can do better.
It’s no surprise that the anti-business climate in California has caused a steady exodus of companies to more affordable places.
We at Commercial Real Estate Group of Tucson recently came across an interesting report about it in “California Business Departures: An Eight-Year Review 2008-2015.” The January 2016 report was presented by Joseph Vranich, president of Spectrum Location Solutions in Irvine, California.
It’s a comprehensive look at what’s going on there and, more importantly, how it affects Arizona and other states. It took a look at 1,669 incidents of California companies fleeing, not expanding or deciding not to locate in the West Coast state, what the report calls “disinvestment events.”
What we like about the report is the methodology it details when corporate site selectors and commercial real estate brokers compare cities for potential relocations, expansions and openings.
Ranking Site Selection Issues
The report points out that when companies are considering a permanent move, economic incentives are low on the list of considerations. We agree. Our experience is that workforce availability, regulatory requirements and infrastructure are very much top of mind with site selectors.
Commercial real estate site selectors list potential locations based on preferences to regions or communities that have preferred customers, vendors and other institutions. Infrastructure, particularly transportation, and workforce are examined, the report says.
That list is then tested against
- adequate workforce
- taxes, regulations and the legal environment
- lifestyle and community attractiveness
- the availability of the ideal facility.
It’s only when the finalist communities are named that economic incentives are sought and negotiated with the appropriate government agencies. In fact, sometimes a decision as to where to locate is made without any incentive discussion at all.
“Good incentives cannot make up for a bad location,” the report says.
However, it’s our opinion that good incentives can win in the final selection when all other aspects are equal among the finalists.
From California to Arizona
Arizona was the third biggest state beneficiary of California’s disinvestment events, although the Tucson metropolitan area won far fewer gains than the Phoenix metropolitan area.
The Phoenix metropolitan area ranked third in the top 10 list of destinations that benefited from disinvestment events, the report says. Only two Texas metropolitan areas benefited more from California’s loss. Phoenix, Scottsdale, Tempe, Chandler and Mesa were among the top 15 Individual cities where companies chose to locate instead of in California cities.
Here are some of the companies listed in the report that either left or rejected California for the Tucson metropolitan area.
HomeGoods announced in 2015 that it chose Tucson over California for its $80 million West Coast distribution center. The company was lured by a government incentive package and Tucson’s logistics and transportation systems that include easy access to the growing Mexican market.
LCMS Laboratories Inc., headquartered in La Jolla, California, chose to expand by opening a high-complexity lab in Oro Valley, Arizona, a growing biotech hub just north of Tucson. “The goals and objectives of the Tucson scientific and medical communities blend perfectly with our future endeavors,” CEO Dale Ziegler said at the time of the February 2015 announcement.
Roche decided not to locate the headquarters of its newly acquired Ventana Medical Systems in California, even though it has a subsidiary headquarters presence in South San Francisco. Instead, it chose in 2010 to expand the Ventana facilities in Oro Valley. “A 182,400-square-foot building was built with the shell going up in 90 days,” the report says, “which is faster than what could have been achieved in California.”
Comcast shuttered its northern California call centers and eliminated about 1,000 jobs, the report said. The company first attributed the closures to California’s high costs of doing business, although it later toned down that statement to say its decision focused on “establishing specialized call centers focused on particular customer needs.” It has opened call centers throughout the country, including in Tucson in 2016.
We know of other companies that are not mentioned in the report, but have said they chose Tucson over a California location. Sun Corridor Inc., Southern Arizona’s economic development organization, mentions among them Universal Bio Mining’s relocation and Target.com Fulfillment Center’s choice of Tucson over California.
Attracting California Businesses
We welcome more California companies to take a look at Tucson and Southern Arizona for their relocation and expansion. We, and California companies for that matter, feel this area has a lot to offer to new and existing businesses, including
- an educated and trained workforce
- lower costs for living and doing business
- a premiere research university, the University of Arizona
- synergistic concentrations of bio, mining, aerospace & defense and manufacturing industries
- well-established logistics and transportation systems centrally located and accessible to Mexico.
So how do we take better advantage of California’s loss of companies? We can start by continuing to improve our job market and productivity, which has yet to recover in any strong way since the 2008 recession. While the area continues to crawl toward pre-recession conditions, it is far behind in making the area attractive to companies looking for growth in workforce talent.
The city also should continue to be open to providing economic incentives to large employers that will add job opportunities at good wages. Large employers grow small businesses, too.
We need strategic trade missions and other recruitment efforts focused on California similar to those that Tucson has devoted to strengthening economic ties with Mexico.
We do our part by sharing Arizona’s and Tucson’s business success stories with site selectors and commercial real estate brokers whose California clients are searching for a place that is less costly and less regulated.
Commercial Real Estate Group of Tucson specializes in representing tenants and corporate users across the United States, Latin America, Europe and Asia as a member of ITRA. For more information call +1-520-299-3400.