By Dennis J. Donovan, Principal, Wadley Donovan Gutshaw Consulting
Introduction
The pace of corporate headquarters (HQ) relocation has been steadily rising since 2021. Headquarters relocation needs to be placed in the context of transformational dynamics that are influencing strategic shifts by many businesses. Such dynamics include introducing new products/services, dropping longstanding products/services, digitation, balance of remote vs. in-office work, brand partnerships, increased mergers/acquisitions, generative AI/digitization/immersive technologies, regionalized supply chains, outsourcing or insourcing, nearshoring/reshoring, sustainability, and R&D/Innovation (e.g., open innovation ecosystems/partnerships).
These dynamics often require a significant or dramatic change in corporate headquarters. Such dramatic change could embrace the process of re-engineering, restructuring the organization hierarchy to promote greater collaboration/agility, overcoming resistance to change, de-emphasizing certain skills and/or adding a fresh set of skills, right-sizing headquarters functions, lowering the cost of headquarters operations, reshaping corporate vision/culture, and/or communicating the company’s brand/reputation to stakeholders.
As companies adopt business models to strengthen competitiveness and financial performance, headquarters relocation can comprise one of multiple tactics utilized to achieve strategic goals and objectives.
Headquarters Definition
A corporate headquarters (or head office) is a company’s centralized nerve center housing executive management (the C-suite), key managerial teams, and business support staff. Typical head office functions embrace operations, human resources, information technology, risk/management, marketing/sales, investment/media relations, legal, finance, innovation (R&D sometimes is situated away from HQ), and business strategy.
Corporate home office headcounts can vary widely depending on a company’s operational model. Some firms are more centralized while others employ a more decentralized model. Furthermore, the degree of outsourcing for non-core functions also affects headcount sizing.
Sizing is an important consideration for determining what, whether, and where to move headquarters. The impact involves relocation costs and savings, maintaining a single or split HQ entity, teamwork collaboration/innovation, adoption of corporate culture, and span of control.
Why Relocate
There are a host of reasons why a company would relocate headquarters. For the purposes of this article, we define relocation as moving long-distance or beyond a reasonable commuting distance of the current head office site. Basically, this involves an inter-area rather than intra-area relocation.
Among the drivers underlying headquarters relocation are:
- Achieving cost reduction/containment
- Strengthening synergies with existing operations already present in a new location
- Replacing existing talent with talent that will better embrace corporate vision, culture, and job responsibilities
- Improving access for customers, suppliers, visitors, and/or other stakeholders
- Consolidating geographically dispersed operations
- Pending lease expiration or extensive need for building renovation
- Combining operations due to merger/acquisition
- Tapping into an area’s industry ecosystem
- Operating in a more business-friendly environment
- Realizing lower living costs for employees
- Reinforcing a change in the company’s brand/reputation
- Enhancing the ability to recruit talent nationally or globally
What to Relocate
The decision regarding what to relocate involves quantifying headcount, office space, and operating costs for existing headquarters functions. Once the strategic drivers are defined (i.e., scale and cost of current operations are quantified, potential outsourcing is determined, preference for housing all pertinent functions at one site is defined), the process of ascertaining which operations could move will be initiated.
Among the analytical inputs underpinning the “what” analysis are:
- Need for any functions to remain in the current location (e.g., due to customers, partners, unique talent)
- Core vs. non-core functions
- Benefits of moving each function
- Risks of moving each function
- Viability of splitting functions (i.e., a portion of headquarters stays while the remainder goes)
- Positions that will be move-eligible.
- Mobility of employee groups (e.g., based on salary, position, demographics, etc.) that are relocation-eligible
A summary chart (see Exhibit 1) can be of value for gauging relocation eligibility. It can also be important to seek input from key executives. This process would necessitate creating a relocation committee and then ascertaining which executives not on the committee, should be contacted for either input or observations.
Whether to Relocate
This task is often referred to as a feasibility analysis. The relative pros and cons of relocation are assessed.
First the study’s building blocks need to be established. As noted above, this step includes establishing a relocation committee, including its leader and project coordinator.
Then the following parameters need to be addressed:
1. Communication protocols/rules of confidentiality
2. Project Code Name
3. Potential timing
• Committee decision
• Board approval
• Announcement
• Action date (e.g., when would a
potential move occur)
4. Payroll records (used as a base for assessing HR impacts)
5. Office space occupied
6. Occupancy costs
7. Most onerous tax/business climate factors at the existing location
8. Assumptions regarding
• Employee relocation package
• Employee retention package
• Employee replacement cost
• Temporary dual operations
9. A workplace model, both for existing and new sites
• Mostly remote
• Hybrid (e.g., 1-2 days at home and 3-4
days in office)
• Full-time office
10. Major changes to internal space design (e.g., collaboration/team space and impact on size of office space)
11. Relative importance of location criteria, e.g.,
• Talent Pool Depth
+ Executive/managerial
+ Professional
+ Often a high concentration of skillsets germane to a pertinent industry and/or function (e.g., consumer brands, energy, bioscience, digital media, aerospace/defense, fintech, etc.)
• Extensive air service, both domestic (e.g., nonstop to nearly all U.S. gateways) and often international (ideally to Europe, Asia, and Latin America)
• Presence of other corporate headquarters
Appeal for national (and in some cases international) talent recruiting
• Quality of Life (perceived and actual)
• Cost-of-living
• Business operating costs
+ Labor
+ Occupancy
+ Taxes
• Favorable business climate (e.g., labor regulation, permitting, fiscal policy)
• Presence of higher educational institutions, often for developing partnerships
• Proximity to customers, suppliers, or other company operations
12. Base Case (i.e., remain at existing site) for study purposes
13. Selection of logical, test locations, to be utilized in the feasibility study
After laying the study’s foundation, the next challenge is to gauge relocation impacts. These effects would entail analysis of the following:
1. Employee Impact
2. One-Time Costs
• Human Resources
• Real Estate
• Physical move
• Temporary duplicate operations
• Transition management
3. Recurring business costs (including savings and/or penalties vs. the base case)
• Payroll
• Occupancy
• Taxes
• Travel
• Potential (statutory) incentives offset
4. Additional key considerations (e.g., size of a specific talent pool, air service, access to customers, etc.)
5. Summary of risks/rewards
The relocation committee interprets analytical results in the context of key business drivers/objectives underlying a potential headquarters move. Subsequently a recommendation is made to executive management on whether to move either short distance (within the same metro area) or long distance (well beyond the immediate metro area).
Where to Relocate
A systematic process is followed to ultimately select the best long-range location for the corporate head office. The first task is to conduct a location screening exercise to generate a shortlist of qualified locations. Typically, the test locations utilized in the feasibility study analysis are included in the screening exercise. The existing site should also be part of the equation, for benchmarking purposes.
Initially, several metro areas that meet basic criteria such as population size, air service level, time zone, and proximity to customers are chosen to begin the analysis. Subsequently, the initial candidate areas are contrasted on pertinent statistical indicators. These factors often include demographic trends, labor costs, office space costs, annual college graduates in certain disciplines, living costs, number of Fortune 1000 Corporate HQs, level of air service to specific destinations, etc. This process will yield a longlist of locational candidates (often 4-8).
A confidential Request for Proposal (RFP) is then issued to each area’s leading economic development organization. The RFP is designed to elicit intel not readily available from secondary data sources. Such intel includes:
1. Concentration of Corporate HQs
• Fortune 1000
• Middle Market
• Public and Private
• Industry specific
2. Companies that have recently moved headquarters to the area
3. Planned air service improvements
4. Sampling of available office space including lease rate (or purchase costs)
5. Industry ecosystems including non-HQ office operations, R&D/innovation centers, not-for-profit entities, university programs, etc.
6. Potential incentives
Each area is contrasted on qualitative variables (e.g., talent pool) and business costs. The end result is a selection of finalist or shortlist locations (typically 3-4).
In the next analytical phase, empirical research is conducted in each area. This phase entails both virtual (e.g., confidential interviews with HQ employers) and in-person evaluation (e.g., additional interviews, quality-of-life tours, office space tours, and dialogue with economic development organizations). Essentially, this analytical phase encompasses a far deeper dive than was performed during the location screening effort.
Analytical input will embody the following:
1. Population trends, including net migration
2. Talent pool depth
• Metro
• By submarket
3. Commutation Patterns
4. Competitive demand by skillset
5. Competitive market compensation
6. Optimal submarket from an HR perspective
7. Availability/cost of office space in the preferred submarket
8. HR practices to ensure preferred employer status
9. Keys for recruiting/retaining recent college graduates
10. Quality of place
11. Cost-of-living (including discretionary income for transferees)
12. Ease of staffing both replacement positions and headcount growth
13. Projected employee turnover level
14. Accessing the industry ecosystem
15. Air service characteristics including flights, on-time performance, downtime due to weather
16. Natural disaster risk
17. Metro area perceived image and alignment with the company’s brand/reputation
18. Taxation/regulatory environment
19. Final estimate of employee impacts and one-time costs
20. Preliminary incentives package, e.g.,
• Performance based grants
• Job creation tax credits (preferably cash or refundable credits)
• Property tax abatements
• Sales tax abatements
• Training stipends
21. Shortlist of office space within the preferred submarket
22. Year One and projected operating costs
• Payroll
• Office (lease and operating expenses)
• Taxes
• Travel
• Incentives (offset)
23. Other considerations as appropriate
The relocation committee now weighs decision factors such as those denoted above. Agreement is then reached on the best metro, submarket, and shortlist of office space. An alternative location is also chosen for both contingency and leveraging purposes (e.g., incentives negotiation).
Once executive management approves the recommendation, the project enters the commitment phase. This phase includes last mile real estate and incentives negotiations, final relocation/severance policy assumptions, group move timeline, and the introduction of other players (internal and external) that will need to be added to the team. Also, a communication strategy for key stakeholders needs to be crafted.
Conclusion
The pace of Corporate HQ relocation has been robust, and we anticipate the trend to persist. This pattern reflects the unprecedented change that companies are facing now and well into the future. According to recent SEC filings, 9% of 6,700 publicly traded companies in the U.S. moved home office operations from March 2022 to March 2023. This proportion equates to 593 companies “on the move” and, of those, roughly one-quarter (or approximately 150) relocated long-distance. This HQ relocation volume excludes privately-owned corporations.
A preponderance of these “long-distance” relocations have been from high-cost to more moderate-cost metros. However, the underlying drivers behind HQ relocation often involves strategic reasons beyond operating cost. The implication is that companies overwhelmingly prefer to achieve strategic objectives in areas that offer a more favorable operating cost platform.
In weighing the pros/cons of a HQ move, HR impacts tend to predominate as a decision factor (e.g., employee attrition/retention). Similarly, in choosing a new HQ location, the talent equation typically exerts the greatest influence of “where” to move both in terms of a destination metro and specific submarket.
We anticipate that larger metros with deep talent pools, extensive air service, moderate costs, and favorable business climates will continue to attract the majority of corporate HQs. However, mid-size metros can also play in the game, especially those that have a compelling ecosystem in a specific industry (e.g., robotics) and/or function (e.g., AI/Software Engineering).
Lastly, the attached map depicts the Top 25 metros for HQs of Fortune 1000. Greater New York City ranks number one with 91 Fortune 1000 HQs. Chicago registers number two with 58. Rounding out the Top 10 are Dallas/Fort Worth (47), Houston (43), San Francisco (41), Los Angeles (34), Atlanta (33), Washington DC (33), San Jose (32), and Philadelphia (31). Interestingly, if San Francisco and San Jose are combined the Bay Area/Silicon Valley would rank second (73). In the future we will witness a migration of corporate HQs from the highest cost metro areas to locations which feature both lower business and living costs.
About the Author
Dennis J. Donovan is a founder and principal of Wadley Donovan Gutshaw Consulting, LLC based in Bridgewater, NJ. The firm has performed many HQ relocation studies over the past four decades.
