Workers and businesses on the coasts are feeling the pull of more affordable locations in midwestern and southwestern states.
Meanwhile, cities in Middle America are benefitting from the influx of people and companies from traditional powerhouse cities like New York and San Francisco.
So, what's causing this migration?
It initially stemmed from individuals motivated by a desire for better quality of life during the pandemic. Now these and other individuals may be interested in continuing to work remotely for companies located elsewhere, while some businesses are also choosing to relocate or enter new markets, often motivated by financial incentives and a ready work force.
"Companies are coming to our region to reduce big-city operating expenses, take advantage of incentives and be amongst workers seeking less congestion and a more family-style environment," said BOK Financial® Regional Banking Executive Marc Maun.
And growth-oriented cities and states are ready to receive them, having designed or extended many business development tools to employers to help absorb the influx of people and to manage the resulting push-pull demands.
Accessible financial incentives are often difference-makers
While business leaders consider a broad range of factors when considering relocating their company or expanding to a new market, city and state-sponsored financial incentives typically come into play such as:
- Sales tax exemptions. Commonly issued pre-pandemic for new or rehabilitated office space, tax exemptions or allowances on building supplies for newly constructed facilities are now more prevalent in industrial real estate, especially warehouses, and multi-family or mixed-use developments. The Kansas Department of Commerce offers a variety of financial incentives and recently issued a $60.2 million sales tax exemption over five years for an under-construction battery manufacturing facility.
- Property tax abatements. Opportunities to reduce property taxes make projects more affordable for developers, though they result in fewer tax dollars for essential services like schools, libraries and infrastructure. Allowances or abatements can span years at various rates. For instance, San Antonio developers recently received a 75-year tax exemption to convert obsolete, mid-1900's industrial buildings into a $93 million housing project with market rate and income-sensitive rents.
- Direct subsidies. Other municipalities or states offer government-issued direct cost subsidies. For example, a city or jurisdiction may cover all or partial costs of a parking garage that accompanies new multi-family housing. In Denver, the city's capital improvement budget is partially funding redesign and construction of the 16th Street Mall, a renovation 40 years in the making.
- Training allowances. Ranked No. 5 in 2022 by population in the U.S., Phoenix offers several types of allowances including rebates or tax credits to companies that meet hiring, training or new job creation objectives. The desert city grew by more than 11% to 1.6 million between 2010 and 2020, and the broader Phoenix/Mesa/Chandler-area grew to 4.8 million residents as of 2021.
"People and companies are fed up with high taxes and the hurdles they have to jump through to start or expand a business," said Mark Wade, Bank of Texas CEO. "We have welcoming people and will continue to create incentives for companies to relocate to Texas. Our communities have active business leader networks where businesses attract businesses, and there's a synergy effect that delivers growth."
Office space costs less
Lower lease rates in Middle America also tend to complement workers' changing in-office preferences.
According to Maun, not having to pay expensive, big-city rents can have a dual benefit for companies operating in central and Southwest states.
Often located in downtown or midtown-type areas, Class A office space is typically new or recently renovated construction that includes energy efficient glass features, marble finishes and a distinctive architectural presence. Desirable amenities like a gym, parking garage, or state-of-the-art connectivity are common. Comparatively, Class B office space, with rents from 10% - 30% less, is generally older, with good finishes and adequate systems or infrastructure.
As companies' in-office needs evolve and current leases expire, tenant companies are evaluating their space needs. Many are becoming more amenable to employees or contractors working remotely, and some are relocating.
"Many companies may never go back to being in the office five days a week. It's more like two to three days already," said Maun. "The current change in workplace dynamic around hybrid/remote has encouraged companies to diversify their locations or even relocate. In turn, their employees are looking beyond their current location to address their preferred lifestyle."
Affordability attracting talent
In addition to company incentives, retaining existing talent and attracting new employees are key elements of the decision as well.
Reduced cost of living is a major draw when it comes to recruiting talent, and the Midwest and Southwest are much more affordable than many large, coastal metro areas, said Wade.
As average home prices continue to rise across the country, possibly one of the most attractive reasons to move away from the coasts is a reduced cost of living and a higher possibility of home ownership for employees. That's especially true as the average home prices in 2023 range from $1.6 million in New York City/Manhattan and $1.3 million in San Francisco to $500,000 in Dallas and $268,000 in Tulsa.
Maun, who lives in Tulsa and earlier worked in both Oklahoma City and Kansas City agreed, adding that those areas' cost of living is sometimes 50% less expensive than major coastal cities when considering housing, groceries, restaurants, entertainment and more.
"Once people get here, they're really, really happy with their choices," said Aimee Schwartz, director of talent acquisition at BOK Financial Corporation Group. She quickly recalled an executive who she recently recruited from Hoboken, New Jersey, saying that his family was "shocked" at the amount of home and space they could get in Tulsa.
Be where the workers want to be
Growth cities recognize the importance of amenities in attracting or retaining residents and the organizations that employ them. By having both urban and suburban living options, and then aligning those with arts, cultural, dining and entertainment options, inland communities are enjoying a win-win.
"When pitching recruits, we absolutely use the favorable economic data and up-to-date amenities," said Schwartz. "The highly-targeted candidates have done their own research, know the value and they're reaching out to pick and choose markets. They don't want to make a mistake."
Here's a glimpse at what's available outside the major costal metropolises:
- Albuquerque is known for attracting companies in cutting-edge industries and its vibrant arts and restaurant scene.
- Lovers of live music, art and historical landmarks are at home in San Antonio. Long known for its friendliness and cuisine, it recently scored a Top 15 ranking for emerging entrepreneurs. "The 110 miles of Highway I-35 that connects San Antonio, New Braunfels, San Marcos, Austin, Round Rock and Georgetown is the fastest growing U.S. tech corridor," said Wade, who travels the state weekly.
- With its proximity to mountains and recreation, and a thriving tech and arts scene, Denver grew by nearly 2% annually between 2010 and 2017, and only slightly slower since. It recently ranked in the top 25 among U.S. cities for remote workers. Tulsa, San Antonio and Kansas City were among the top 11.
Central locations simplify air travel
From a transportation perspective, accessibility, proximity and convenience make it easier to do business, said Wade. Dallas-Fort Worth International Airport serves nearly 250 locations non-stop, reaching most domestic cities within three hours. For someone living on either coast or accustomed to traveling often, a move inland can reduce their travel time, particularly red-eye flights. Same-day trips between cities are manageable and hotel nights can be fewer. Besides the established state-wide airport system in Texas, regional airports like Denver International Airport are modernizing and the newly opened terminal in Kansas City recently received a "Best U.S. Airport" ranking.
Texas reaping the benefits
Texas in particular is having success in attracting residents due to its pro-business posture, affordability and climate, according to Wade. "We are a business-friendly state, without local or state income taxes, where cities work well—separately and together—to grow for the greater good," he said.
As proof, the state's population grew 20% to more than 30 million residents from 2010-2022, second only in residents to California. For 2022, five Texas cities—Houston, San Antonio, Dallas, Austin and Fort Worth—ranked among the country's 15 most populous.
"We see the in-migration, and we're not seeing the unemployment rates in our markets change significantly, so companies and workers are finding each other," said Maun.