Conor Sen is a Bloomberg View columnist and a portfolio manager for New River Investments in Atlanta.
The construction of large corporate headquarters and skyscrapers often turns out to be a sign of an economic peak. The Empire State Building was planned, and construction began, at the onset of the Great Depression. The Willis Tower, originally known as the Sears Tower, began construction right before the stock market crash of 1973-74. (Soon after, Wal-Mart, which eventually disrupted Sears's business model, began trading as a public company.) The Burj Khalifa in Dubai, currently the tallest building in the world, was under construction as the global financial crisis began in 2008.
That history gives a bit of an ominous feel to the new $5-billion (U.S.) headquarters for Apple in Silicon Valley. The most valuable publicly traded company in the world unveiled its iPhone X earlier this month, with the highest price tag yet – almost $1,000. So many superlatives. It certainly sounds like peak … something.
We may look back at this moment as when economic power began to shift elsewhere. The San Jose, Calif., metro area's economic data is already beginning to show that.
For decades, the southern portion of the San Francisco Bay Area, now known as Silicon Valley, has been a global hub of innovation and a breeding ground of large technology companies. What started as an industry based in suburban office parks has evolved into large self-contained campuses as the industry has grown more profitable and powerful. So perhaps it's no surprise that Apple would have the most extravagant headquarters of them all, with its vast, circular campus signalling both infinity and permanence, reminiscent of an alien spaceship that has landed to create a futuristic Stonehenge.
Yet, Silicon Valley may no longer be the wisest geographical bet, even for a company as profitable and powerful as Apple. While the technology industry is more powerful than ever and its largest companies continue to grow, the geography they call home increasingly looks tapped out. Employment in the San Jose metro area had its largest drop in August in seven years. It's fallen in four of the eight months in 2017, and sits at a level not much higher than it reached at the peak of the dot-com boom almost 17 years ago. While wage growth in the region remains strong, and unemployment hovers at a low level of 3.5 per cent, the labour force has begun to shrink, indicating that one of the strongest labour markets in the country is no longer bringing people in.
The culprit is familiar: the housing market. While the Bay Area boasts one of the world's finest combinations of economy, climate and culture, voters and politicians in the region have resisted permitting increased density and housing to go along with the job growth fostered by the technology industry. It's possible these political attitudes may change, but it's not a bet I would make, and not one that should be made by large companies looking to secure an adequate work force to support their growth.
It's understandable that companies such as Apple would resist adapting to these economic realities. The largest technology companies make billions of dollars a year and can afford to pay above-market rates to secure top talent in the Bay Area. And until now, most of the best tech jobs, and tech talent, have been in the Bay Area, ensuring a vibrant labour market ecosystem even as housing costs spiralled higher and higher.
Amazon, in its decision to build a second headquarters somewhere other than Seattle, may have kicked off a new geographic era for the technology industry. Over time, other talent clusters will grow in lower-cost regions. Whether it's in a couple of years or a couple of decades, eventually today's tech titans will feel economic pressure to cut costs and restructure, just as every company and every industry before it has. And when that moment comes, Apple's glamorous new headquarters, rather than feeling like a spaceship, may feel more like the Titanic.