In the past few weeks, we’ve learned that heavyweights in technology, including Oracle (NYSE: ORCL) and Hewlett Packard Enterprise (NYSE: HPE) decided to move their headquarters from Silicon Valley. That would have seemed crazy just a few years ago, but it looks like the tech world is finally starting to look elsewhere.
In that Fool Live music video of our December 14 Industry Focus show, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why technology companies are deciding to move, and whether other big cities could also see companies leaving.
Jason Moser: Well, Matt, we are seeing signs that companies and leaders are starting to get a little tired with California. Elon Musk recently moved to Texas. Now, Oracle has announced the move of its headquarters to Texas. Matt, I understand the feeling. There are some concerns about regulatory issues, taxes, blah, blah, blah. I’m going to read a brief quote here from Elon Musk, where he said: “If a team has been winning for a long time, it tends to get a little complacent, a little full of rights and then it doesn’t win the championship anymore. California has been winning for a long time time and I think they’re giving it a little bit of value. “They are entrepreneurs and innovators. Matt, we are seeing businesses and companies continuing to think about leaving California for one reason or another, as remote work becomes more consideration, more of an opportunity. It seems to me that this is something that we will see more of here next year. We were talking over the weekend about it. It looks like it’s going to be a catalyst for a handful of real estate stocks out there, right?
Matthew Frankel: It is good for some and bad for others. [laughs] Just to add to that list, Hewlett-Packard is another one that is leaving California.
Moser: Yes.
Frankel: First, why are companies leaving California? High taxes, extremely high cost of living in Silicon Valley, which also translates into high employment costs. I don’t remember the exact data, but I remember the average salary of Facebook (NASDAQ: FB) is around $ 300,000 a year.
Moser: This is amazing.
Frankel: The reason is not because Facebook pays its employees exorbitant amounts of money, but because it is expensive to live in Silicon Valley.
Moser: Yes.
Frankel: It is not just a matter of remote work, it is a matter of cost savings. Question number 2 is why Texas?
Moser: No state income tax. This is one thing.
Frankel: No state income tax, real estate is relatively cheap. If a company wants to get a few hectares of land and build a new headquarters, it is much cheaper to do in Texas than in Silicon Valley.
Moser: Right.
Frankel: No state income tax. Miami is another popular destination for that reason. I don’t remember which companies they were moving to Miami. Goldman Sachs (NYSE: GS) said they are bringing many of their operations to Miami.
Moser: Wow. OK.
Frankel: This is another. Florida has no state income tax, which is another big motivator and the weather is good. It’s like Silicon Valley on the east coast in terms of climate, I think you’d call it.
Moser: Maybe a little rainy. Well I do not know.
Frankel: A little rainier, but hot. The tech guys don’t like the cold for any reason. [laughs] One question, before I get into some real estate stuff, do other cities have to worry about the same thing? What if it’s remote work they do? If the thesis is that people will be able to work remotely, they will not want to work where it is expensive. They are leaving. So, other cities need to worry. But I don’t think cities like New York have so much to worry about.
Jason Moser: Maybe not.
Matthew Frankel: New York does not have as many corporate headquarters, especially in the technology industry, as in Silicon Valley, which companies are based in New York? Mainly financial services companies.
Jason Moser: Financial Capital.
Matthew Frankel: Because they need a good proximity to Wall Street. Wall Street is not moving. I don’t think Wall Street itself is going to move to Texas.
Jason Moser: Very doubtful. That would be really cool. I will not lie [laughs] Now, if you had a lot of barbecue buffet lunches, an afternoon siesta, just a little more than a relaxed day at work, that would be really good, actually. [laughs]
Matthew Frankel: You can defend that, but that doesn’t mean it will happen. [laughs] But, by the way, I think this is a disproportionate California issue.
Jason Moser: Yes, I think you’re right.