Site Selection In 2020: The Squeeze Is On

Attracting a relocating business to a particular place is tougher than ever in the current high-employment, incentive-skeptical climate. Yet in the face of such headwinds, economic development organizations have come up with some creative ideas to boost their site selection prospects.

Take Topeka, Kansas, where economic development officials recently rolled out Choose Topeka, a pilot program that offers money to workers to relocate to the city. Under the program, people with job offers in Topeka can apply for as much as $15K if they are looking to buy a house in the area, or $10K if they sign a one-year apartment lease.

The program is being supported by advertising that is clearly aimed at a younger audience that might be persuaded that a low-cost city such as Topeka is worth a look. Choose Topeka might thus be creative, but at its heart the incentive is an example of a small city doing battle in the war for talent. The larger the critical mass of skilled young workers, the thinking goes, the better the prospects to attract businesses to the area. (Topeka has more conventional incentives for businesses as well.) 

The response to the program — especially after it got the attention of late-night comedian Stephen Colbert — has been remarkably strong and interest in Topeka has come from around the country and the world, said Molly Howey, the senior vice president of economic development for Go Topeka, a division of the region's umbrella economic development organization, the Greater Topeka Partnership.

Places large and small are in the war for talent and the businesses that hire them, though most of the corporate site selection spoils go to the same large U.S. metro areas.

Chicago, Dallas-Fort Worth and New York were the top-performing metro areas in the latest edition of The World's Most Competitive Cities, compiled by EY, the Milken Institute, Conway and Oxford Economics and published in Site Selection magazine. Each has more than 2 million people within its city limits, according to the U.S. Census Bureau's 2019 estimates.

Other areas might not be site selection behemoths like Chicago or DFW, but they have some edge when it comes to attracting young talent, either as interesting places to live or places that offer high-paying jobs, or at least decent wages compared to the cost of living.

According to a study by Magnify Money, San Francisco has attracted the most millennials and is where they have seen the largest increase in wages. San Francisco is an expensive but popular city, while the other highest-ranking millennial boomtowns are less expensive but have attributes that have attracted millennials in droves. They include Denver, Austin and Nashville.

While the major metros continue to dominate the rankings, smaller cities — where one successful business attraction could make a meaningful difference to its tax revenues — still need to find ways to make that possibility a reality.

Site Selection cites the example of Findlay, a town of about 41,300 in northwestern Ohio, as a success in attracting businesses. The city has a number of corporate HQs, a relatively low cost of doing business, and active collaboration between local colleges and employers, all of which help give it an edge. The town also supports local entrepreneurship, which spurs long-term local job growth.

Topeka is stressing its job opportunities for young talent as well as a low cost of living.

"Economic development is now about taking a more holistic approach to emphasizing the assets of a region," Go Topeka's Howey said. "It's about stressing your assets for placemaking. Everyone talks about quality of life, but you have to be more specific. What is it about a place that will allow a company to attract and keep workers?" 

Topeka tells its potential workers that there is lots to do in Kansas' state capital, perhaps more than generally appreciated, that they won't pay a fortune for housing, and they won't spend a lot of time stuck in traffic. Chicago and Dallas-Fort Worth have kept their spots as the top cities for drawing businesses across an array of industries, ranking top five in at least 10 of the 12 industrial categories: business and finance, chemicals and plastics, electronics, food and beverage, IT and communications, machinery and equipment, metals, automotive, life sciences, energy, aerospace, and transportation and logistics.

Challenges For Economic Development

Attracting and keeping businesses has never been a simple task, but as 2020 begins, it is more challenging than ever, according to economic development experts.

For instance, a city or county might have much else going for it in the bid to attract new or expanding business — a strong economy, access to transit, lifestyle amenities — but if the available office space is lacking in supply or quality, it is going to be at a distinct disadvantage.

"One factor is simply a lack of high-quality space, at least at a price that makes a relocation an attractive proposition," Xpera Group Director of Economic and Market Research Alan Nevin said, noting that in some places, office vacancies are hovering between 8% and 10%, and industrial vacancies between 3% and 5%.

"In some urban cores, land prices have gotten a little silly, especially for industrial development," Nevin said, adding that California has been particularly prone to that problem, so much so that in some ways Phoenix functions as an industrial market adjunct to Southern California and Reno likewise to Northern California, so those areas are attracting businesses that need large amounts of industrial space.

JLL puts the national office vacancy rate at 14.2%, making for a tight market at least until the next wave of spec office space is delivered in 2022 and 2023.

Besides a lack of space, many urban areas also lack the transportation infrastructure necessary to attract businesses that employ young and well-educated talent. Even a place like greater Boston, which is a tech magnet, has that problem.

"If this [Massachusetts] House and Senate and governor do not get serious about raising billions for transportation improvements, because we have underinvested in the system for more than a generation, we are screwed,” Kendall Square Association President C.A. Webb said at a recent Bisnow event.

Among the other challenges in the site selection process are low unemployment and wage inflation, according to Site Selection Group CEO King White. Unemployment has been low for some years now, and after many years stagnating, wages are finally beginning to grow, to as much as 4% this year. Minimum wages are rising in some places, pushing up wages at the lower end of the pay scale. 

That complicates the site selection process, especially for companies that need more traditional, non-tech kinds of workers, such as at warehouses, call centers and retail operations, White said.

There is also more grassroots pushback against tax incentives — a movement that has found its legs recently, with the potential to persist over the coming years. For decades, a wide range of incentives, including straightforward tax breaks and job training schemes that benefit relocating companies, have been par for the course in economic development. 

During the third quarter of 2019, Site Selection Group estimates that site selection incentive packages totaled about $1.56B nationwide. Of that total, more than $1.2B went toward the largest 25 incentive packages.

Cree, a manufacturer of semiconductors, took home the largest package of the quarter, a little more than $500M from the state of New York to develop a 480K SF facility in Utica. The deal attracted criticism.

"This looks like it's a very, very high cost-per-job economic development project," W.E. Upjohn Institute for Employment Research Senior Economist Timothy Bartik told the Albany Business Journal, asserting that it is even more expensive per job than Wisconsin's deal with Foxconn, which has been blasted as a boondoggle.

But perhaps no incentive package has ever received the blowback accorded Amazon HQ2 in New York City.

"Many Americans are rightly aghast at the 'economic war among the states' as so plainly revealed by Amazon.com Inc.’s HQ2 auction," writes Greg LeRoy, executive director of Good Jobs First, which tracks economic development incentives. "And now they are also emboldened to challenge the system underlying this corrosive war by the enormous community organizing victory in New York City that caused Amazon to cancel its plan for one new headquarters in Queens."

Besides driving Amazon away from ambitious New York building plans, the incentive pushback has inspired more cities and states to do rigorous analyses of their impact. The most recent states to require regular analysis of economic development tax incentives are Kansas and Montana, bringing the total to nearly two-thirds of U.S. states, according to Pew Research.

How Site Selection Strategies Are Changing

More data is a available than ever before, and there are more ways to crunch the data than in the wildest dreams of a 20th-century statistician, but it hasn't made the site selection process easier, for businesses looking for space or economic development entities looking to provide it.

"Site selection has become more complicated in the last decade due to the availability of more data, how the data is analyzed and extremely tight labor conditions," said White, who founded Site Selection Group after leading Trammell Crow's site selection platform.

Companies are looking at a long list of positive attributes, White said: labor availability, reasonable labor costs, a good education system, workforce development initiatives, low personal and corporate taxes, employer-friendly labor laws, a minimal union presence, accessibility, economic incentives, reasonable real estate costs and reasonable utility costs.

The importance of these factors will vary by project or industry type, but some combination of them is always at play, White said.

With those many metrics in mind, companies are thus demanding more advanced site selection analytics to help support local, regional and international location decisions, King said. The demand has caused economic development organizations to become more sophisticated in their efforts to attract companies as well as develop more effective workforce development initiatives.

"The fundamentals of site selection haven't changed, but the dynamics of the market have," said  Brandon Talbert, a director at Cleveland-based site selection firm Austin Consulting. "Access to rich data resources have enabled companies to make better-informed decisions."

Moving forward, communities and economic development agencies will need to be more innovative to compete for new investment, Talbert said. Rural communities in particular will need to demonstrate that they can meet workforce demands and provide access to amenities that a younger demographic is seeking.

"Selecting a location that provides access to a skilled, educated workforce has never been more important," Talbert said. "Companies are looking for any advantage possible when it comes to hiring and retaining workers." 

Regional economic development organizations have begun specializing, placing a focus on a globally important industry in which to make a long-term investment, in the hopes of developing a cluster.

One of the better-known examples is the San Diego region, and its tight focus on life sciences, which has made the area a significant cluster in that industry. Loudoun County, Virginia, has "Data Center Alley," which more than half of the world's internet traffic travels through and land prices have skyrocketed as data center builders gobble up space to build bigger and bigger campuses.

The recently completed "drone zone" between Syracuse and Rome, New York, is another example of a state/local push to encourage site selection by a particular industry in a particular place. In this case, the state of New York has gone to considerable lengths to boost the unmanned aircraft system industry.

In November, the state established a 50-mile unmanned traffic management drone corridor between those two cities, the first of its kind in the country. Companies are now able to test drones and drone technology beyond visual line of sight in part of the corridor.

In greater Milwaukee, one strong economic development focus has been water technologies. The industry in the region supports about 20,000 jobs, with more than 120 water-related companies having a presence in or nearby, including water tech giants A.O. Smith, Badger Meter and Kohler.

Work is nearly complete in Milwaukee on Green Tech Station, an incubator that will be home to as many as 20 pilot projects focused on water filtration technology, facilitated by a 20,000-gallon water tank and pumping system on the property.

Besides its unusual program to attract a young population, Topeka's more standard economic development programs aren't focused on one industry, but emphasize specific assets, Howey said. The natural resources in the area support the growth of the food industry, and there are specialized training courses that businesses can use to train specialized workers.

"The skills are here, and so are the resources to do customized training," Howey said. "That strategy has become increasingly important in recent years, and it isn't unique to Topeka. Both existing and new businesses wanting to tap into the programs, which offer training specific to an industry or even an individual company in cooperation with universities or tech schools."