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John Boyd Consultant's survey ranks Las Vegas high for low corporate operating costs Click image for an enlargement.

Wednesday, February 06, 2002
Copyright © Las Vegas Review-Journal

LV fares well in survey of corporate costs

Valley could benefit from more relocations

John Boyd thinks Las Vegas will emerge as one of the nation's top cities for Fortune 500 companies looking to relocate their headquarters, a trend started last year by Boeing Corp. and fueled by recessionary times.

His Princeton, N.J., corporate location consulting company, The Boyd Company Inc. (not affiliated with Las Vegas-based Boyd Gaming Corp.), completed a recent study on operating costs for headquarters occupying 100,000 square feet of premium office space and employing a support staff of 500 people.

Las Vegas came in at slightly more than $22 million a year, higher than only Indianapolis on a list of 25 major U.S. cities.

San Francisco topped the list with operating costs at $29.1 million, followed by San Jose, Calif., and New York.

"The critical element of economic development is timing," said Boyd, who was in Las Vegas for a Tuesday meeting with corporate executives interested in the study.

"I've seen cities come in and out of favor over time. A lot of Sun Belt communities that offered less operating expenses over the '90s may have become a victim of their own success ... increased wage pressure, escalating land costs."

Boyd suggests that Boeing's move from Seattle to Chicago was historic and that corporations are re-engineering themselves because of free trade pacts and the recession.

Manufacturing plants have closed or moved overseas, warehouse operations have been consolidated, staffs have been downsized.

"Now they're focusing on their white-collar facilities, including corporate headquarters," Boyd said. "That's taking place when comparative economics are critical. They're not improving the bottom line through added revenue, they're not making more sales, so they have to cut costs."

Las Vegas breaks out favorably in Boyd's chart of total annual geographically variable operating costs.

Labor costs here, for instance, totaled $17.4 million annually, including benefits, for a 100,000-square-foot headquarters with 500 employees, compared with $22.2 million annually in San Francisco. Office rent was estimated at $2.4 million annually, on par with Dallas, Phoenix, Denver and Houston, but again much cheaper than San Francisco ($4.5 million) or New York ($3.5 million).

Electric power costs, while rising in Las Vegas, were calculated at $112,068 annually, slightly higher than Houston and Denver.

Boyd points to other factors such as the absence of corporate and personal income taxes, relatively low land prices and a legislative environment that's perceived as being friendly to business.

He noted that Nevada's Legislature made a key move before Enron's problems were exposed when it approved reducing the liability of corporate officers and directors. It also set up chancery courts to handle legal issues related to business, similar to a system used in Delaware.

"I think his study is right on and we should see more of this occurring," said Dan Van Epp, president of the Howard Hughes Corp., which moved its headquarters a couple of years ago from Hughes Center to Summerlin.

The Rouse Co., parent of Hughes Corp., has also established its Western region headquarters in Las Vegas.

"A lot of us have said Las Vegas is one of the best-kept secrets in attracting high-tech companies and corporate headquarters. Of course, we have an attractive corporate tax structure and a great quality of life," Van Epp said.

A knock on Las Vegas has always been its lack of an educated and skilled work force, but Van Epp said he was talking to some people in Berkeley, Calif., who mentioned that Las Vegas is attracting a cadre of professionals looking for a lifestyle to complement their jobs.

"It's an elastic labor market," Boyd said. "It has in-migration, it has potential for growth. That mitigates inflationary wage pressures."

He said the casino industry has trained a work force here with skills that can be transferred to the corporate office, including secretarial and administrative personnel and customer service representatives.

Companies such as Ford Credit, Household Finance and Williams-Sonoma have already set up operations in Las Vegas to take advantage of a diverse and flexible work force, Boyd said.

The city has quality commercial airline service at McCarran International Airport, which helped Las Vegas come in low on corporate travel costs at $420,389 in Boyd's study.

"There's no perfect location. It's trade-offs," Boyd said. "When you talk about qualitative factors, some people like vanilla and some like chocolate."