California’s Business Climate: An In-Depth Look at Site Selection Rankings and Trends

In the world of economic development, perceptions matter—a lot. As Sally Fields might have put it, site selection consultants don’t like California. They really, really don’t like the state and its business climate. This sentiment was starkly illustrated in the latest rankings from Site Selection Magazine, where California landed at the bottom of the list, once again struggling to shed its negative reputation among site selectors.

For those who might find solace in California’s perennial rival, Texas has also experienced a decline in its standing, moving down from its previous top spot. This decline reflects the growing competition among states vying for corporate expansions and relocations. Ron Starner, editor at Site Selection Magazine and executive vice president at Conway Data Inc., emphasized this sentiment, stating, “The message to anyone working in economic development in Texas right now is ‘Lace up your bootstraps because it’s only going to get more competitive.’”

The Shifting Landscape of Corporate Relocations

The shifting landscape of corporate relocations has placed Texas under scrutiny, especially as some high-profile companies have moved their headquarters from California to the Dallas-Fort Worth area. Notable departures include Charles Schwab, McKesson, and Core-Mark International, adding to California’s growing list of losses. The latest high-profile exit is Chevron, which relocated its San Ramon headquarters to Houston. This trend has ignited speculation about Wells Fargo, a major player that is currently selling its San Francisco headquarters complex. They may be planning a move to a new amenity-rich campus in Las Colinas, a master-planned community in the Dallas suburb of Irving.

Las Colinas has branded itself as the “headquarters of headquarters,” hosting numerous Fortune 500 companies, making it an attractive location for businesses seeking a more favorable operating environment. Even though Wells Fargo has stated it has no intention of moving its headquarters out of San Francisco, the prospect of relocating to a more modern facility highlights the competitive advantages that other states are offering.

Quality of Life and Business Environment: The Critical Factors

One of the critical reasons for California’s poor showing in the business climate rankings is the combination of high taxes, burdensome regulations, and escalating labor costs. In addition, the lack of affordable housing has become a significant hurdle for both individuals and corporations considering a move. Crime rates and general quality of life issues have also emerged as growing concerns for companies looking to expand or relocate. These factors have not gone unnoticed by site selectors who work closely with CEOs on expansion plans.

In fact, some consultants have coined the term “U-turns” for clients who initially seek their advice on moving to or expanding in California but ultimately decide against it after assessing the state’s business climate. This trend underscores a broader issue facing California: the perception of being a challenging environment for business operations.

Competition Intensifies: Georgia and the Rising Stars

While California struggles, other states have begun to shine in the eyes of site selectors. Georgia captured the crown in Site Selection’s rankings, followed closely by North Carolina and South Carolina. This shift indicates a growing preference for states that offer a more favorable business climate. Texas and Tennessee rounded out the top five, but the competition is fierce, and states are continuously innovating to attract new businesses.

Interestingly, South Carolina has also gained recognition in the realm of relocation, topping U-Haul’s latest ranking of states where people are moving, based on one-way rentals. This highlights a trend where states that were once considered secondary options are stepping into the spotlight, offering appealing conditions for both companies and individuals.

California’s Innovations and Strengths

Despite the challenges, California is not without its strengths. The Bay Area, in particular, continues to be a powerhouse for attracting venture capital, fueling innovation and fast-growing startups. As Governor Gavin Newsom stated, “I’d like to start focusing on what’s right for a change,” criticizing states like Texas and Tennessee for their competitive advantages while acknowledging California’s unique position. He remarked, “I get it. We’re not going to be the cheapest place to do business. But you knew that 50 years ago.”

The focus on innovation and technology remains vital for California, especially in light of the fact that 78% of site selectors indicated that access to an innovation or technology hub is critical for their decision-making process. Unfortunately, Silicon Valley no longer holds a monopoly on this advantage, as several cities across the nation have bolstered their tech presence in recent years.

Emerging Trends in Site Selection

As site selectors evaluate potential cities for corporate relocations, certain trends have emerged. Dallas has consistently topped the list of preferred cities, highlighting the growing allure of Texas as a business hub. Following Dallas, cities such as Charlotte, Atlanta, Nashville, and Raleigh, N.C., have gained traction among companies looking to relocate.

California’s dismal showing in these rankings is a wake-up call for the state, prompting discussions among business leaders and economic developers regarding how to improve the business climate. The Bay Area Council has been contemplating becoming a more influential voice in advocating for businesses to remain and thrive in California, especially as it seeks to collaborate with the Silicon Valley Leadership Group.

Conclusion

The landscape of business climate rankings reveals a stark reality for California: it is facing intense competition from other states that offer more favorable conditions for businesses. High taxes, regulatory burdens, and quality of life concerns are substantial challenges that the state must address. However, California’s strengths in innovation and venture capital cannot be overlooked. As the competition intensifies, it is crucial for California to leverage its unique advantages while addressing its shortcomings. Only then can the state reclaim its position as a leader in attracting and retaining businesses in the ever-evolving economic landscape.