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Post-Pandemic Economic Development

Small cities target remote workers, not just employers

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When we talk about livable cities, we usually focus on the details. We go back and forth about the way housing is developed or streets are used. But a city isn’t the sum of its infrastructure and the surface area of its buildings. A city is an experience. Things like public transit and communal amenities play an important part in what makes a city desirable, but there are other factors that bring people to cities that are far outside of the purview of city planners. One good example of this is the presence of compelling natural resources and recreational areas nearby. People move to cities to live the life that the city provides. But for many people, the surrounding areas and the hiking, camping, rock climbing, cycling, and sightseeing that they offer are just as or even more important. For property investors, recreation is often an afterthought compared to the number of employers or new corporate arrivals within a city. It’s time for that to change.

The reason we don’t talk about this much is that natural recreation isn’t something that cities can change. Just like a weak jaw or small calves, cities inherit problems from their ancestors. They can’t just pick up and move closer to a mountain or a forest. Which isn’t to say that no one has tried. Indoor ski slopes are a growing phenomenon, with America’s first located in the American Dream mall in New Jersey. Climbing gyms are also an increasingly common sight in the well-heeled parts of many cities. Each of these places seeks to bring the benefits of nature into places that might not have it otherwise, but at the end of the day who is going to seriously argue that an indoor ski hill is as exhilarating as hitting a mountain slope or that even the toughest indoor climbing gym is comparable to scaling up a sheer cliff face? 

It’s largely the irreplaceability of natural recreation that has led thousands of millennials to cities and towns throughout the South, West, and Northwest. Density matters, too, particularly against the backdrop of the pandemic. Smaller cities offer many of the same opportunities for culture, shopping, and entertainment as bigger ones (less depth of options just comes with the territory), and they allow their residents to engage with these offerings without requiring them to always be jammed into crowded apartment complexes and sidewalks. But while density and natural recreation are very valuable, perhaps the single biggest factor causing people to pick up and move to new cities is affordability. A transplant from New York City to Austin, a Millennial mecca considered to be on the more expensive side of the big destination cities, would see his or her dollar go 36% farther after the move. And that same transplant, if moving to Tucson, would be even better off: Tucson’s cost of living is 51 percent less than that in New York City. 

That is my story, as someone who left Chicago for the Arizona desert (I benefited from a comparatively paltry 14 percent cost of living drop). And I am far from alone. Sure, Austin, Portland, Tucson, or Charlotte might not have as many breweries, restaurants, and niche shops as New York City or Chicago, but between the open space, much cheaper cost of living, and room to grow, smaller cities offer a winning combination that bigger ones, by definition, cannot match. 

With the arrival of COVID-19, perhaps the single biggest barrier to migration is now crumbling. Where people have hitherto needed to go to where the work is, more and more workers are now geographically liberated enough to go where they would like to be, since between Zoom, Slack, and Salesforce, work can now cross oceans and mountain ranges. Meanwhile, the direct impacts of the virus outbreak, the risk that a walk down the street now embodies, are compelling push factors helping people get up the gumption to relocate to greener pastures. Where would you rather be during a lockdown: the center of the world, or a smaller city with its own breadth and depth of local businesses, restaurants, and resources, and a network of mountain trails minutes away? 

For many people, small and medium cities can offer a great middle ground between the benefits of the big-city experience and the escape of a rural setting, with those important factors of affordability and lower density as well. According to Glenn Kelmen, Redfin’s CEO, “Redfin is preparing for a seismic demographic shift towards smaller cities. We expect to see more people commuting once a week from Sacramento to San Francisco, from Tacoma to Seattle, from New Hampshire to Boston. Some won’t commute at all, choosing instead to work completely virtually from a small town, perhaps where their parents still live.” Critical for the smaller cities in question, each of those people represents one more taxpayer that can help fund other initiatives, upgrades, and improvements. 

To be clear, Manhattan and the Loop in Chicago are not in any danger of losing all their residents. There will always be people who simply prefer the big city experience, and have the resources to get a lot out of it. Zillow’s home search data from April 2020 shows volume increases year on year for the overwhelming majority of the nation’s biggest metro areas, including Los Angeles, Phoenix, Chicago, and Houston (volumes notably dropped in New York City). But for smaller cities, the move towards remote work is an opportunity that has many leaders excited for the future. The logic is simple: Remote workers who move do so because they can, not because they have to. Their presence, tax dollars, and energy are that much less likely to disappear due to a geographic reassignment or company consolidation. The value represented by remote residents has prompted some cities to begin marketing directly to the remote worker, not just the company. 

Annemarie Henton, vice president of business development and marketing for the private nonprofit Albuquerque Economic Development, champions this direct approach with the “Stop Bagging, Start Bragging” campaign she co-founded. The campaign’s goal is to directly address the narrative surrounding Albuquerque from one of comparisons to cities like Denver, to one that focuses on what is unique, good, and exciting within Albuquerque itself. Stop bagging, start bragging. 

City marketing has the opportunity to turn heritage and geographic legacies into strong draws for transplants from elsewhere. In a MIPIM PropTech Europe keynote co-organized by Propmodo, the Manhattan Institute’s Aaron Renn urged cities to explore what makes them unique and not just try to copy what was successful elsewhere. “What is the thing that most new creative directors do when they take over a new fashion house? A lot of the time it is to go digging in the archives to look at the history of the house and then reiterate that for a new age. Think about what Karl Lagerfeld did at Chanel. He kept the brand authentically Chanel but also authentically of the present moment,” Aaron said. 

Sometimes, marketing a city takes a more tactical approach too. Tulsa is offering $10,000 in support stipends and cash, and a complimentary co-working space membership, to out-of-state remote workers who move to the city. Vermont and northwest Alabama have taken similar approaches, too.

Annemarie told me smaller cities can struggle with comparisons to bigger ones in terms of new companies arriving, numbers of projects underway, and similar metrics. But these comparisons are not apples to apples. Of course Denver, a metro area with around three million people, will have bigger development numbers than Albuquerque, a metro area with around 1.1 million. So Annemarie asked a question: “What if this entire community of a million people use their one voice to talk about how awesome Albuquerque is instead of repeating the negative headlines?” The focus should be on what a city is good at, and the unique experiences it delivers, not on what it’s missing.

“Who decided Denver was cool fifteen years ago? Denver,” Annemarie added. “Who decided Austin was cool the last twenty years? Austin. I really believe it’s that word of mouth, that individual desire to be in a place that seems cool, that has the things on your checklist [of desires for a home city]. Especially with Millennials and Gen Z, it’s so powerful that people are going to follow each other to the next city,” just as they did on the way to Austin and Denver. Opening up a new front on the economic development strategic map might seem daunting. However, the benefits of enticing new blood, and in particular remote workers who can choose to be where they truly want to be and not just where their job takes them, make it worth campaigns like Stop Bagging, Start Bragging. As more and more of the knowledge economy goes digital, the winning combination of smaller cities might become irresistible. 

This matters to more stakeholders than just economic developers and remote workers alone. Developers need to take note, too. Many of the smaller cities and more rural towns out there are less expensive than their bigger, denser counterparts. For municipalities with favorable growth trends and strong dynamics, that can mean a winning combination for investors. As remote work becomes a more standard menu option for today’s young workers, these smaller cities and towns will need high-quality housing options for the new residents. And then, as the saying goes, retail follows rooftops. Small towns may not have the same level of need for sophisticated office space as their bigger counterparts, but retail space and industrial properties to keep the gears turning will be critical, too. 

Property investors should begin looking now at the markets and submarkets that are well-located to offer lower costs of living alongside ample open space and recreational opportunities. Some markets may not look like much now, but Austin wasn’t built in a day. For the cities and towns that check these boxes, the investment prognosis is bright indeed.

For any individual smaller city or town, the benefits of remote workers will not materialize without clear, consistent marketing effort from the cities themselves. With the right messaging and clarity of purpose, directed at the kind of people who move because they want to and not because they have to for work, smaller cities can solidify their long-term outlooks for residents, new arrivals, and investors alike.

Associate Publisher, Propmodo Research
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