In The Corporate Relocation Hunger Games, Texas Is No Longer No. 1

Virginia edged out Texas as the nation's top state for business in CNBC's 2019 annual report. 

Though CNBC said “it is hard to imagine a conversation on state competitiveness that does not include the Lone Star State,” the drop in ranking highlights that economic headwinds are starting to give other U.S. states an edge over Texas when relocating corporations come calling. 

Texas, long known for attracting corporate giants such as Toyota, lost points in the areas of education and quality of life, according to CNBC’s study. It was also dinged for a lack of economic diversity that meant a drop in oil prices has hit the state hard.

Texas' urban areas are beginning to feel the downsides of rapid growth, and relocating companies are beginning to take notice that all that glitters is not gold, analysts say. 

Rising property taxes, labor shortages, educational issues and infrastructure woes are hitting Texas, RSM U.S. LLP Chief Economist Joe Brusuelas said. 

“The common denominator through all of this in terms of keeping firms in Texas and attracting other ones to set up in Texas is Texas has to solve its infrastructure issue,” Brusuelas said. “The airports and the roads are simply not sufficient to keep up with the growth that’s occurred over the last 20 years and that is something that can’t just be worked around, it’s going to have to be addressed, and the infrastructure is going to have to be fixed.”

Brusuelas said DFW and Austin need to develop other regional airports or expand existing ones, while also building out roadway infrastructure around the urban cores to support traffic loads. 

With high-tech workforces in demand, Texas' lagging education system is particularly problematic. 

Brusuelas said Amazon eschewed Dallas for Virginia when looking for another U.S. headquarters due to its need for a regional market filled with highly trained tech workers and access to a pipeline of future workers from top educational facilities.

Texas recently lost a major corporate relocation opportunity likely for the same reason: retailer Lowe’s chose Charlotte, North Carolina, over Dallas for its 2,000-person tech hub. 

Greg Burkart, who serves as managing director and head of site selection at Duff & Phelps, follows market data and evaluates potential sites in various cities for clients eyeing relocation. He ran Dallas-Fort Worth and Charlotte data through Jobs EQ to determine why Charlotte beat Dallas in the battle for Lowe's.

He concluded that Charlotte edged Dallas out by having 1% more workers with bachelor’s degrees.

Charlotte also has a higher unemployment rate of 3.8%, compared to 3.1% in Dallas. Higher unemployment usually means an area has enough available talent to absorb new job opportunities without raising wages. 

ESRP President of Site Selection Services Susan Arledge warned earlier this year that with a record low unemployment rate, Texas is no longer positioned to attract workers on the promise of jobs alone. Employers may now have to pay more to recruit talent, which takes some of the kick out of the benefits of moving to Texas. 

Charlotte’s overall annual wage is $5K less than Dallas' average, and the Charlotte cost of living is 2.5% lower than the national average while Dallas’ is 2.5% higher, Burkart found when analyzing the two cities' data in Jobs EQ. 

Overall, all of the major Texas markets — Dallas, Houston, Austin and San Antonio — remain strong and have the metrics to support sustained strength going forward, Brusuelas said.

But he said for the first time since the state’s incoming population growth peaked in 2015, policymakers in Texas are faced with challenges that need to be dealt with systemically. 

“I think some of the internal issues in the state, especially around property taxes and a lack of labor which drives up wages, suggest that things have slowed somewhat and at least for this year, it has fallen from the top perch in the CNBC study," Brusuelas said. 

Trade and slowing immigration from other countries also will pressure local Texas economies a bit as these dynamics continue to adjust. 

“This is where it is going to be a difficult adjustment because there is not much Texas can do about this,” Brusuelas said. “These are going to be national macro decisions that are going to be made at the White House. I do think that there is some concern at this point in the business cycle that we would be getting relief from immigration abroad to come in and work as domestic workers move up the income ladder, and they fill those lower-level jobs.”