Since 2018, 465 companies have decided to pack their bags and move to the USA, and Texas takes the cake. According to commercial real estate giant CBRE - which itself relocated from Los Angeles to Dallas in 2020 - 209 companies have chosen the Star State as their new base. Conversely, the San Francisco Bay Area saw 79 headquarters leave, 50 to Los Angeles and 21 to New York.

CBRE Americas Consulting examined nearly 500 publicly announced head office relocations between 2018 and 2023.


The same trend was observed at FDi Markets, with a quarter of the 680 US relocations recorded since 2019 involving companies leaving California. Meanwhile, Texas has attracted nearly a fifth of corporate relocations over the past five years, closely followed by Florida (13%).
Texas attracts corporate relocations
FDi Intelligence


The American entrepreneurial center of gravity has shifted 2,400 kilometers to the east. According to Forbes, Texas is now home to 55 Fortune 500 companies, the most of any state. Major companies such as OracleHewlett Packard Enterprise (HPE) and Charles Schwab have relocated their headquarters to the Lone Star State since the pandemic began, a move that CBRE estimates can save a company 15-20% on employee salaries. Austin has also attracted Elon Musk's companies, home to X, SpaceX and Tesla.

Meta has also given itself a Texas twist. Mark Zuckerberg announced it in a statement chiseled to the millimeter: from now on, the monitoring of Facebook and Instagram content will be piloted from Texas. His argument? To eliminate suspicions of ideological bias and ensure more "balanced" moderation. But according to The Guardian, not everyone is convinced by this change. Former employees denounce the move as more of a show than a real transformation. Meta has already had moderation offices in Texas for over ten years, making this move more symbolic than strategic. Some see it above all as a nod to Donald Trump, a subtle repositioning as the company seeks to adjust its image in the face of the new administration. Let's close the Zuckerberg parenthesis.

The tech and manufacturing sectors are by far the ones that have announced the highest number of relocations to Texas, with 135 and 120 relocations respectively according to the CBRE report.

Tech and manufacturing companies dominate relocations
CBRE

Texas may be a furnace in summer, with temperatures flirting with 40°C, but that doesn't stop American companies seeing it as an economic El Dorado. The main reason? The business climate and low taxes. CBRE and Chief Executive's survey of over 600 U.S. CEOs, with representatives from every state, come to the same conclusion: Texas is the best state to do business.

Reasons why companies move to Texas
CBRE

Texas is like the fiscal wild west of the United States. No income tax for individuals, ultra-competitive taxation for businesses, and a red carpet rolled out for newcomers. It's a no-brainer for those hesitating between the congested coastline and the wide-open spaces of the Lone Star State.

From a purely financial point of view, Texas offers an undeniable advantage. The combined state and federal corporate tax rate is 21%, the lowest in the country. By comparison, California taxes its businesses at much higher levels:

  • Federal rate: All US companies are subject to a federal corporate income tax of 21%.
  • State rate: In California, C corporations are subject to a corporate income tax of 8.84%.
  • Franchise Tax: Regardless of profitability, businesses must pay a minimum annual tax of $800.

Personal income tax :

  • Federal rate: The top marginal federal income tax rate is 37%.
  • State rate: California applies a progressive tax rate, reaching up to 13.3% for the highest incomes.

This combination of federal and state taxes makes California one of the highest-taxed states in the country, both for businesses and residents.

But Texas doesn't stop there. It has created an ultra-business-friendly ecosystem. The franchise tax, a kind of business tax, is almost anecdotal:

  • 0.375% for those generating between $1.18 and $10 million in annual revenues.
  • 0% below this threshold. In other words, if your company starts out with modest sales, the government doesn't deduct a cent.

This cocktail of light taxation and generous incentives makes Texas a magnet for companies looking to grow. What's more, according to a study by FDi Intelligence, among the reasons given by companies for relocating, nearly half (47.7%) of relocations to the United States since 2019 cited "availability of skilled labor" as the reason for the decision. This was closely followed by regulations (31%) and proximity to markets or customers (31%).

But then a question arises. Why, instead of moving directly to Texas, have the tech giants taken up residence in California? From the plains of the Midwest to the skyscrapers of New York, companies have always been spoilt for choice when it comes to setting up shop. For the choice of California, we have to go back in time.

Silicon Valley wasn't built in a day. It all began in the 1950s and 1960s, with pioneers like Fairchild Semiconductor and Intel laying the foundations for the digital age. The region's proximity to Stanford and Berkeley provided an inexhaustible pool of brains, transforming the area into a permanent laboratory of innovation.

A virtuous circle was soon established. Engineers move easily from one company to another, startups are born and die at breakneck speed, and investors are on the lookout for the next Apple or Google. Texas, on the other hand, has never had this concentration of talent or this effervescent dynamic.

Silicon Valley is also a hotbed of venture capital. California accounts for 40% of venture capital investment in the United States. In 2023, Texas raised $6.7 billion in funding for startups. Impressive? Not really, considering that California attracted $106 billion over the same period. In a world where raising funds is a matter of survival, having the right investors at hand makes all the difference. Without this financial fluidity, many unicorns would never have left the idea stage.

California is also an international hub. The best developers come from India, China and Europe, attracted by elite universities and an ultra-competitive job market. Texas, while welcoming, has never enjoyed the same global reach. But now, while Silicon Valley retains its aura of innovation, Texas knows how to play its cards: low taxes, more affordable cost of living, lighter regulations. As a result, more and more established companies are choosing to relocate their offices here to escape California's constraints.

In 2023, California faced a budget deficit of nearly $32 billion for the 2023-2024 fiscal year, forcing the state to cut spending. At the same time, San Francisco's commercial real estate market experienced a significant drop. Office property prices have fallen by over 30% over a three-year period, and according to CBRE reports, the office vacancy rate in downtown San Francisco has risen from 3.9% in 2020 to over 29% in the first quarter of 2023.

What about the Lone Star State? In 2023, Texas posted a record budget surplus of $32.7 billion, surpassing the annual budgets of many other US states.

Texas budget surplus
TCPA

The Star State lures businesses with tax incentives and promises of economic freedom, but behind this façade of dynamism, cracks are beginning to appear. Austin is suffocating under real estate pressure: in five years, housing prices have jumped by almost 40%, making the city increasingly inaccessible to local workers.

But Texas' real Achilles heel is its energy. A freewheeling electrical grid, isolated from the rest of the country, that collapses with every winter storm - as we saw again in 2021 and 2023, with massive blackouts plunging millions of homes into darkness and cold. What about water? Same battle: in the western part of the state, industrial expansion and population explosion are putting a strain on reserves, a situation that could quickly become critical.

But building a technological ecosystem doesn't happen overnight. Silicon Valley remains the beating heart of global tech. But for how long?

https://www.marketscreener.com/news/latest/Why-are-companies-fleeing-California-for-Texas-48962688/