Salt Lake a good fit for tech – Study shows city is cost-competitive for I.T. firms expanding

Salt Lake City is on the "short list" of cities west of the Mississippi attractive to information technology companies looking to flee the cost-prohibitive California market, according to new information from a New Jersey-based corporate location consultant.

By Jenifer K. Nii
Deseret Morning News

http://deseretnews.com/dn/view/0,1249,595091581,00.html

The Boyd Co. Inc., whose clients include JP Morgan Chase, PepsiCo and the World Bank, compared 18 California cities and 12 western and central U.S. regional locations in the cost of operating a 35,000-square-foot, 125-worker information technology facility. Among the cities surveyed, Salt Lake City was the fifth least-expensive city, behind Tucson, Ariz.; Omaha, Neb.; Oklahoma City; and Sioux Falls, S.D.

The firm ranked the cities based on operating costs including Class A office lease rates, utilities, corporate travel and the cost to retain skilled or educated workers.

John Boyd Jr., consultant with the Boyd Co., said the cities chosen for the study either house large concentrations of information technology operations or, in the case of Salt Lake, are "those cities that we’re projecting will be on the short list of our clients looking to expand or relocate in the years ahead."

"There really is today an unprecedented preoccupation, an unprecedented focus on reducing costs at all levels of corporate structure, because of a softened economy, because of free trade," Boyd said. "The result of this borderless economy we live in today is an increased competition, an increased focus to be cost competitive.

"It’s no longer enough for companies here in Salt Lake to be cost competitive with rivals in San Diego or Boston or Chicago. Now you must be focused on being competitive with your competition in Portugal or in Canada or Asia."

That "preoccupation" has brought smaller cities into the mix like never before, Boyd said. Cities like Sioux Falls and Omaha. Cities that will now compete with Salt Lake City for IT jobs.

"Over the course of the last several years, it’s no secret that companies have been fleeing California," Boyd said. "The major beneficiaries of this have been Denver, Phoenix and Las Vegas, and those cities have become victims of their own success. By virtue of attracting so much industry, they’re now experiencing inflationary wage pressures, inflationary real estate costs. So now, our clients are looking beyond the usual suspects."

Compared to San Francisco, the survey’s most expensive city, a client in Utah could save about $2 million annually, the study found. Total annual operating costs in Salt Lake City were estimated to be $10 million. In Sioux Falls, those same costs came in at $9.4 million.

Salt Lake City offers continuity of operations, Boyd said, along with a lower cost of living, strong "intellectual capital," strong work ethic and a tradition of fiscal responsibility and business-friendliness.

However, it is disadvantaged by its state corporate income tax (something Sioux Falls doesn’t have) and low population growth, he said.

Mark Knold, senior economist with the Utah Department of Workforce Services, said Tuesday that the information technology sector has achieved a "modest" level of recovery since the height of the recession. And, he said, the fundamentals remain strong.

In December 2000, Utah employed about 70,500 IT workers, Knold found. That number fell rapidly from 2001 through 2003, reaching its trough in July 2003, when there were about 54,700 Utahns working in the IT industry. Since then, Knold said, the sector has gained about 2,000 jobs.

He said the department’s data indicates that the number of businesses held firm during the lean years.

"There didn’t seem to be a whole lot of them going out of business," he said, speculating that the bulk of firms trimmed staff levels and waited out the storm rather than closing their doors.

"The fundamental foundation to establish that (industry’s initial growth in Utah) to begin with is still there," Knold said. "It’s still in place."

A study by the Center for Urban Economic Development at the University of Chicago looked at six urban markets over a three-year period and found that the IT sector lost more than 403,000 jobs from March 2001 to mid-2004 — more than 200,000 of which were lost after the recession was declared over.

"Despite recent aggregate monthly job growth numbers, there is little evidence of significant job expansion in the IT industry," the report stated.

However, Boyd said, the IT industry is poised to rebound as the larger economy continues to strengthen.

"When that happens, as the economy begins to improve, our clients will reject the old model of becoming increasingly profitable and then relocating to a large marketplace like San Francisco and San Diego," Boyd said. "Because now our clients see what happens when the economy does turn sour and their facilities are in these prohibitively expensive cities."

Richard Nelson, head of the Utah Information Technology Association, said the industry is still showing some reluctance to expand operations out-of-state. But he expressed optimism that the tide is changing, and that Utah is ready for the turnaround.

For now, he said, Utah’s IT growth likely will come from within.

"I think you’ll see that the direct benefits to the economy will come in the expansion of existing businesses," Nelson said. "We have over 2,600 IT companies, which are so much better positioned to grow after hunkering down and surviving the depressed conditions. Utah is finally very well positioned to grow some of these larger seedling companies into anchors for this state in the near future."

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