The San Francisco Bay Area has long been home to a number of tech giants. But sky-high rents may finally be driving those companies to seek out more cost-effective solutions to house their headquarters.
Last year, Oracle announced a move from Redwood City, California, to Austin, Texas. And now, Tesla (NASDAQ: TSLA) is the latest company to follow in its footsteps.
More space, less money
California's Bay Area is notorious for soaring rents in both residential and commercial settings. And so leaving the area in favor of cities where rents are more moderate can benefit big companies like Tesla in a number of ways.
First, there's physical space. In a market like Austin, it's easier to get more of it. That means companies like Tesla who set up shop there can ramp up hiring and expand their campuses to fuel more innovation.
Then there's cost savings. Rents are cheaper for companies like Tesla, but just as importantly, they're cheaper for employees.
Though a number of companies may have plans to uphold remote work arrangements once the pandemic comes to an end, many large employers have every intention of bringing employees back to the office in some way. And that means workers will need to live within a reasonable commuting distance. Moving to a city like Austin is a good way to entice workers who may be put off by the idea of Bay Area housing, where rents are atrociously high and simple starter homes can easily top the $1 million mark.
In fact, the median home price in Palo Alto, where Tesla is currently based, is a whopping $3.3 million, per Realtor.com. By contrast, the median home price in August is $588,000.
What real estate investors need to know
Since Tesla isn't the first big company to move its headquarters out of California, and it likely won't be the last, this news should serve as a wake-up call for real estate investors. Given how high rent and property values have soared in the Bay Area, investors there may need to brace for a gradual exodus over the next few years, especially as more companies make the decision to move forward with long-term remote work arrangements.
Meanwhile, the fact that Austin is emerging as a new tech and innovation hub is good news for investors there. The more companies that move to Austin, the more residential investors can benefit via an uptick in rental demand. Property values could also climb in Austin, though the likelihood of them reaching Bay Area levels is slim -- and that's a good thing.
Local businesses in Austin can also benefit from an influx of major employers. New restaurants could open, and existing ones could thrive.
Also, while the Austin housing market is already in great shape, now may still be a good time for new investors to edge their way into the multifamily space. As more companies expand into Austin, the demand for housing will only grow, so there's plenty of opportunity for those looking to break in now.