In the last month, two more major companies headquartered in the Bay Area announced that they would be leaving for presumably greener pastures out of state. One was the energy giant Chevron, and the other was X, the social media company that has been owned by Elon Musk since 2022.
The Bay Area Council, a business advocacy group, seized on the moment to repeat a critique it has made on numerous occasions: “It’s an embarrassment for California that we’ve lost so many global companies because of misguided policies that make it incredibly difficult to do business here,” president and CEO Jim Wunderman said in a statement shortly after the Chevron news broke.
Here’s what Wunderman said in 2020, when the software giant Oracle shifted its headquarters from Redwood City to Austin, Texas: “Anyone who doesn’t believe that this latest departure isn’t a threat to California’s economy is a business climate denier.”
Certain types like to point to corporate relocations as proof that either San Francisco or California is spiraling into a crisis because of poor governance or anti-business policies.
But experts say it’s extremely rare for a major business decision to be made in a vacuum, and the fallout often isn’t quite as dramatic as the knee-jerk reactions would have it.
“Either you’re doing this to change your company culture by moving somewhere different, or it’s more of a negotiation tactic meant to garner operational savings,” said Jon Moeller, executive managing director at Raise Commercial Real Estate, the firm that last year brokered a massive new lease for OpenAI in San Francisco.
For example, in 2011, before then-Mayor Ed Lee rolled out a special tax break to lure tech companies to Mid-Market, Twitter (as X was then known) openly shopped for office space in the Peninsula while simultaneously negotiating a lease in San Francisco. The company ultimately agreed to terms at 1355 Market St. and kept its San Francisco office there until announcing its impending closure this month.
Although Musk cited the city’s homelessness problem and a California transgender protection law as his motivations for moving, behind the scenes, the company was falling behind on rent and faced trouble over permitting issues, while massive layoffs had left large swaths of its Mid-Market office empty.
“It might feel like a sudden decision, but it rarely ever is,” said Colin Yasukochi, executive director of CBRE’s Tech Insights Center. He added that it is difficult for any company to relocate its entire workforce at once, especially out of state, without causing serious disruptions — so any significant structural changes take place gradually, in phases.
“The role of the headquarters doesn’t mean the same thing it once did,” Yasukochi said. “Now, you might be able to maintain a fairly large workforce in one place while having your administrative base elsewhere for tax or regulatory advantages.”
Case in point: another Musk company, Tesla. In 2021, it moved its headquarters to Austin, in what The New York Times described as a “blow to California.” But just two years later, the tech mogul returned to the Bay Area and opened Tesla’s “global engineering headquarters” in Palo Alto, which is now also home to engineers from X and another of his companies, xAI.
‘Talent drives our decisions’
Despite an uptick in funding since the pandemic for companies based in alternative tech markets such as Austin or Miami, 20.6% of all venture capital deals this year in the U.S. took place in the Bay Area, down less than a point from 2019, according to Pitchbook.
“You get these big headlines, but no one ever talks about how the overall market is doing as an entity, which doesn’t quite tell the story certain people want,” said Kyle Stanford, the lead U.S. venture capital research analyst at PitchBook.
When the likes of Andreessen Horowitz say they’re leaving San Francisco, it’s more of a boon for whatever markets receive them than an indication that the Bay Area market is failing, Stanford explained.
“The sheer amount of funds that exist in the Bay Area almost insulate it from any massive shift,” Stanford said. “So even if, say, 10 to 20 firms leave, there will always be something to fill that in.”
Further, it’s natural for companies to shift their real estate strategy depending on the location of the workforce they need at a particular time.
“If you have an intense need for top-end engineering talent, then you’re probably going to want to stay in the mix in the Bay Area,” Moeller said. “But if your company is, say, more in sustaining mode or in search of more commodity labor, then you might evaluate areas where the cost of living isn’t as high.”
Take Snowflake Inc. The software company, which was founded in San Mateo, famously went public in 2020 as the “biggest software IPO ever” and shortly thereafter announced that it was going “headquartersless.” It designated Bozeman, Mont., home to its CEO and CFO, as its principal executive base.
However, Snowflake’s office presence in the Bay Area only grew after it “left” the state. The company has since been snapping up more real estate in San Mateo and Dublin. Snowflake did not respond to requests for comment, but a source who works at the company confirmed that its product and engineering teams are clustered in the former location, while the majority of finance and IT teams are in the latter.
This isn’t to say that relocations don’t happen. Chevron, for example, said it will migrate its headquarters from San Ramon to Houston over the next five years after amassing as many as 7,000 workers in the area.
Still, corporate workplaces have become increasingly decentralized, prompted by the advancement of technology that enables remote work, says Chris Barwick, vice president of collaboration and business transformation at Cisco Systems, the multinational digital communications technology company based in San Jose.
Like many tech giants, Cisco started reducing its office footprint in the wake of the pandemic. “We have twice the amount of people now going into half the amount of real estate,” Barwick said, adding that the company does not have in-person mandates for its employees, aided by the fact that it produces products to support remote work.
In response to the changing times, Barwick said, Cisco quadrupled the amount of videoconferencing space in its offices and turned every workspace into a “hot desk” that can be booked by anyone ahead of coming into work. “If our employees are only coming in three days a week, then it doesn’t make sense to commit to paying for the real estate for five days a week,” Barwick said.
“Talent drives our decisions,” he added. “Wherever it emerges in the world, we’re going to want to have a footprint there.”