US IT and Financial Companies Say "Goodbye, New York"

How COVID-19 Changed Urban Landscapes
Escape from Expensive Big Cities Due to Remote Work Expansion

The scene of heavy snowfall in New York, USA [Image source=AP Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] "The novel coronavirus disease (COVID-19) is threatening New York's role as a business hub."

Bloomberg News made this assessment after reports emerged that Deutsche Bank, one of the world's leading investment banks, is considering relocating half of its 4,600 Manhattan employees to smaller regional offices within the next five years. The introduction of remote work due to the COVID-19 pandemic has led to corporate and population outflows, threatening the status of major U.S. cities. This has even resulted in falling rents, reshaping the real estate market landscape.

It's not just Deutsche Bank. On Wall Street, once a symbol of global finance, Goldman Sachs is reportedly considering moving its asset management division, one of its core units, to Florida. Hedge funds Elliott Management and Citadel, as well as Blackstone, one of the world's four largest private equity firms, have also left Manhattan for Florida. On the opposite coast in Silicon Valley, California, long-established Hewlett-Packard (HP) announced plans to relocate the headquarters of its cloud services division, Hewlett Packard Enterprise (HPE), to Houston, Texas. Oracle, which has been based in Silicon Valley for over 40 years, is also moving its headquarters to Austin, the capital of Texas.

Additionally, data analytics company Palantir Technologies, renowned venture capitalist Joe Lonsdale's '8VC', and cloud service company Dropbox are among those leaving Silicon Valley to establish new bases in Austin.

This trend is analyzed as a bold move out of cities driven by cost-cutting becoming a core task for companies amid the COVID-19 crisis. The most sensitive factor for companies is taxes. New York and California are known as states with high taxes in the U.S. California, considered the state with the highest taxes, has a top income tax rate of 13.3%, while New York's top income tax rate is 8.82%. Additionally, New York City residents pay a separate top tax rate of 3.8% on income, which combined means paying about 13% of total income in local taxes. In contrast, Texas and Florida have a personal income tax rate of '0%.'

At the same time, the spread of remote work appears to have accelerated population outflows. According to location data analysis firm Unacast, 3.57 million people left New York between January 1 and December 6 this year. During the same period, 3.5 million people moved into New York, resulting in a net outflow of about 70,000 people. As working styles changed and people spent more time at home, they left expensive cities to settle in relatively cheaper ones. Larry Ellison, chairman of Oracle, and Elon Musk, CEO of Tesla, also left California, settling in Hawaii and Texas, respectively.

The butterfly effect triggered by COVID-19 has also hit the real estate market. Rental prices in major U.S. cities have fallen to historic lows. According to a report jointly published by housing appraisal company Miller Samuel and real estate brokerage Douglas Elliman, the average rent in Manhattan as of November this year was $2,743 (about 2.98 million KRW), down 22% from the same month last year. This is the lowest level since October 2010. Vacancy rates for Manhattan apartments also soared, reaching 15,130 units in November, more than double the previous year. The vacancy rate hit a record high of 6.14%. Rents also fell in other parts of New York outside Manhattan. Brooklyn saw an 8.3% drop to $2,619, and Queens fell 21% to $2,275 during the same period.

San Francisco, which boasted high rents due to the Silicon Valley effect, is no exception. According to rental research firm Realtor.com, the rent for a studio apartment in San Francisco last month was $2,100, down 35% from the same month last year.

With prices plunging and vacancies expanding, landlords are lowering rents to levels unseen since the financial crisis and offering various incentives such as several months of free rent. Jonathan Miller, president of Miller Samuel Inc., said, "This trend will continue significantly into 2021 for rents to stabilize," adding, "It entirely depends on how quickly people return to the office."

This content was produced with the assistance of AI translation services.