PART 1: Migration from big cities and high tax states having an impact locally

(EDITOR’S NOTE: This is the first article in a two-part series focused on a trend in local commercial real estate that a 40-year veteran of the sector has never seen.)

No doubt many of you have been following news out of California that high-profile companies are fleeing the state for a variety of reasons.

Oracle Corporation, a $180 billion tech giant, is moving its headquarters from Redwood City, CA to Austin, TX. Hewlett Packard Enterprise Company is moving its headquarters from Silicon Valley to Houston, TX, and Elon Musk, the iconic entrepreneur ranked as of last week as the world’s wealthiest individual at $188.5 billion, just moved his home address from California to Texas. Axios, a national news site, reported recently that “around 20 million Americans are planning to leave dense and costly metros like New York and San Francisco and move to cheaper cities.”

So, what’s the connection between those anecdotal examples and East Tennessee? The answer is an explosion of interest from individuals and enterprises fleeing big cities like Chicago, New York and those in California for this region. Part of it is obviously taxes – Tennessee has no personal income tax. The bigger factors, however, are quality of life, particularly when you consider the impact of COVID-19 on the nature of work, the Volunteer State’s business friendly environment, significantly reduced commuting times from home to work in cities like Knoxville, and lower levels of compensation that are required because of the lower cost of living.

Those factors were highlighted by Keith Rabois, a General Partner in San Francisco-based Founders Fund, in a recent article in The Wall Street Journal, where he wrote: “COVID basically encouraged people to work remotely and experiment with other places to live.”

In that regard, Mike Odom, President and Chief Executive Officer of the Knoxville Chamber, recently introduced us to Sean O’Malley, a Los Angeles-based video producer who relocated his company and family to Knoxville in August.

To better understand how the pandemic and other issues are impacting our region from a commercial real estate perspective, we sat down recently with Maribel Koella, a well-known executive in the sector for more than four decades. What we learned from the Owner, Founder and Principal Broker at NAI Koella|RM Moore was very insightful.

“Five years ago, people would not wake-up in these cities and ask about Knoxville,” Koella said. All that changed dramatically in late February and early March as COVID-19 began to take hold across the country.

“Things started that did not make sense,” she says, citing as one example a call from a manufacturer in California who put a plant in Madisonville under contract without visiting, relying on photos and other available information. “That was really unusual.”

More recently, Bruderhof Communities, a faith-based global organization, closed on the former Hiwassee College property, also in Madisonville, where it will open its 17th location in the U.S. It also has nine other communities around the world and paid $6.5 million, which includes personal property, to acquire the Monroe County property where 200 individuals will relocate from New York state.

“That (moving an entire community) would not have happened three years ago,” Koella says, adding that it is just one example of a trend that was already happening before the pandemic exacerbated it.

She first became interested in understanding the factors shaping the commercial real estate sector years ago, and that interest caused Koella to become involved in a number of national organizations. At one time, she served as Chair of the NAI Global Leadership Board. Koella also talks regularly with colleagues across the Southeast, in particular, and says cities like Greenville and Columbia, SC are having similar experiences.

NEXT: Koella gazes into her crystal ball.

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