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Talent-Based Location Strategies

Today’s highly competitive market for technical talent is leading many companies to consider entering lesser-known geographies where they can find more accessible pools of high-quality and cost-effective talent in a lower-risk hiring environment.

Workforce Q4 2021
As the U.S. economy continues its recovery from the impacts of the COVID-19 pandemic, employers are encountering an increasingly difficult talent landscape fraught with challenges related to the attraction and retention of the talent upon which their business relies. This is particularly true for the most advanced technical job roles. Amid this environment, companies are relying on their site selection consultants to develop talent-based location strategies that help ameliorate these challenges. Utilizing market data in more creative ways can help companies gain competitive advantage by identifying new pools of accessible technical talent.

The current situation in the U.S. has been coined the “Great Res ignation” as turnover rates are spiking for all positions across different industries and skill sets. The tightening of the labor supply coupled with increased demand for new hiring across the economy is creating serious challenges for companies as they look to increase headcount or at least replace employees lost to attrition. Oversaturated labor market conditions for tech talent are no longer found only in the most established tech hubs (e.g., Bay Area, Seattle, New York, etc.) but most of the second-tier talent markets (e.g., Atlanta, Austin, Denver, etc.) are also finding that the demand for tech talent is outpacing supply as larger companies dramatically increase their hiring in these once emerging geographies. However, the pandemic’s effect of loosening the hold of geography on companies’ talent acquisition is also creating new opportunities for employers to test and tap into lesser-known pools of quality, cost-effective talent in less competitive environments.

The top questions we’re currently receiving from our tech clients (or companies in other industry verticals hiring technical talent) reflect this current situation.

To answer these questions, site selection consultants are utilizing real-time, historical, and forward-looking data to uncover less competitive high-quality markets where clients can establish themselves as an “employer of choice” and better position themselves to access and retain top technical talent. To identify these talent pools, consultants are using a variety of data sets that generally fit into three primary categories:
  • Talent supply (availability and quality)
  • Talent cost (current costs and historical wage inflation)
  • Competitive environment (supply vs. demand relationship and client’s unique competitive positioning)
Talent Supply
Talent supply generally refers to the assessment of the total availability, specialization, and quality of the labor pool in a market. To understand which markets will provide the best match for our clients’ targeted talent profiles we assess multiple factors including:
  • Talent depth + density: This is not just the total depth of the talent pool for the targeted job titles (e.g., software engineer, data scientist, etc.) but also the density (per 10,000 labor force) of that talent to highlight a market’s relative specialization.
  • Skill set specialization: Understanding the depth of talent pool based only on occupational categories fails to paint a full picture of the market’s alignment with a client’s preferred talent base. Because of this, we’re also comparing markets based on the presence and specialization among key skill sets such as programming languages (e.g., C++, Python) and other specialized technical skills (e.g., AI, data analytics, cybersecurity).
  • Growth forecasts: Historical views and future forecasts of talent pool growth by occupation and skill set help us form a view on the likely future supply growth of a candidate market and the client’s ability to scale headcount there.
  • The cost of talent is often not the primary driver for our clients as they seek to identify new pools of high-quality technical talent.
  • In-migration: While the migration of talent has received a large amount of media attention since the pandemic’s onset, most markets have not seen major changes in the talent supply based on migration alone. With that said, monitoring the migration of tech talent by age and years of experience does help uncover new opportunities for our clients.
  • Talent pipeline: The creation of new talent as measured by the university graduate pipeline is often a much more meaningful driver of talent supply growth over the long term than in-migration. Understanding the size and specialization of a market’s graduate pipeline by degree program can help predict the future trajectory of a market’s growth.
  • Diversity, equity, and inclusion: Clients are increasingly interested in measuring how a market is positioned to advance their goals around creating a workforce that is racially and ethnically diverse, has improved gender representation, and is located in a city and state whose laws and policies create an equitable and inclusive environment.
Talent Cost
The cost of talent is often not the primary driver for our clients as they seek to identify new pools of high-quality technical talent. Supply and quality tend to come first in the discussion, but the ability to balance supply factors with cost-effective talent is undoubtedly important. When measuring cost, we’ll look at:
  • Current talent costs: What are the potential cost savings versus existing markets (e.g., SF Bay Area) for the job roles and skill sets the client is looking to hire for? What is the salary spread between median market wages and top of market talent costs (e.g., 90th percentile of pay scale)?
  • Wage inflation risk: How rapidly have talent costs increased historically, and what are the future projections? How will these trends impact future cost-savings potential?
  • Competitor-specific wage analysis: How should each client position themselves in the market to best compete for talent based on both base wages, bonuses, and other employee perks?
Competitive Environment
The opportunity to hire and retain quality technical talent is determined not just by a market’s supply of talent but also by how many other employers are targeting that same talent base and at what volume (i.e., demand). This relationship between supply and demand is too often overlooked, but by accurately assessing the balance between these two factors a company will better understand its ability and positioning to tap into the local talent pool and access a market’s top talent. Some of the key measures to assess the competitive talent environment are:
  • Talent supply vs. demand: Measured in the form of professionals per job posting, this ratio compares the total pool of qualified candidates versus the number of unique active job postings hiring for the same talent profiles (occupations and skill sets) and helps to understand a company’s potential hiring risk in a candidate market.
  • Turnover/company tenure: Two measures that help to highlight the real-time competitive environment in the market are annual turnover rates by job title/skill set and a market’s average company tenure rate for those same roles. This helps to measure the current demonstrated attrition risk in a market.
  • Client’s competitive positioning: Not all competition is created equal, and it’s important to understand how each individual company will be able to compete against other employers in the market with active hiring demands. To this end, it’s helpful to understand historical patterns of where companies have gained talent from and where they’ve lost employees to in the recent past and have this as an input into the site selection process.
The opportunity to hire and retain quality technical talent is determined not just by a market’s supply of talent but also by how many other employers are targeting that same talent base and at what volume. Finding talent markets within the United States offering pools of cost-effective high-quality technical talent with limited competitive risk is increasingly difficult, especially as many of the major tech employers have looked outside gateway markets to satisfy their hiring demands. Instead of picking one market to open an office, many clients CBRE Labor Analytics is working with are choosing to pre-qualify multiple smaller and emerging geographies for targeted remote hiring, where they can test out a labor market’s alignment with their hiring needs, while hopefully also gaining a first-mover advantage that positions them as a preferred employer.

Five Recommendations
The following are five recommendations for corporate decision-makers as they’re investigating new markets for the hiring of tech talent in today’s hyper-competitive environment:
  1. Skills matter — Just because a market has a deep bench of the occupations for which you’re looking to hire does not necessarily mean those employees will also have the needed skill sets; it’s helpful to understand the depth and density of key occupations AND skill sets.
  2. Consider find vs. foster strategies for increasing diversity — Identifying markets where the overall workforce is more diverse than the tech-only talent pool offers opportunities for employers to proactively “foster” diversity by finding new ways to source more diverse candidates who are already in the local market.
  3. Beware wage inflation — Focusing on current talent costs only creates a potential high-risk blind spot. Understanding the historical and projected future rate of wage growth in a market helps to estimate longer-term savings potential and can also be an important proxy for understanding the overall saturation levels of the local talent market.
  4. Know your competitive positioning — Which companies do you have a strong track record of attracting talent from and whom do you lose to? Incorporate this into your location decisions and potentially embrace markets where “good competition” is located.
  5. Don’t forget demand — Focusing only on the current supply of talent without assessing the demand for that talent has led many companies into entering highly competitive markets where they experience challenges accessing the labor pool. Understanding who else is hiring in the market, as well as the relationship between supply and demand, will be a critical decision factor.
What We’re Being Asked
  • • Can we identify multiple “under-the-radar” markets with smaller pools of high-quality talent?
  • • Will candidates in the candidate markets possess the specific technical skill sets necessary to be successful at our company?
  • • Where has tech talent migrated to since the pandemic began?
  • • How is increased remote work (and hiring) affecting local labor market dynamics?
  • • How can new talent markets help advance our diversity, equity, and inclusion goals?
  • • Where can we find lower cost talent while maintaining candidate quality and limiting risk from future wage inflation?
  • • How can we reduce risk from employee turnover?
  • • Which markets will limit turnover risk?

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