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Will COVID-19 Push Businesses Away from the Coasts?

There's a good chance that midsize cities and smaller towns in the heartland will see renewed interest from companies looking for places that combine desirable amenities with sparser populations.

Erie, Pa. The inland city could get an economic boost as businesses flee coastal big cities. (Shutterstock)
The latter half of the last decade saw a massive amount of pixels and ink employed to make the case that small towns, midsize cities and metro areas away from the coasts were becoming increasingly attractive locations for startups and established businesses looking for a home. That narrative peaked during the Great Amazon HQ2 Chase of 2017, when communities across the country fell all over themselves in their efforts to entice the world's richest man and most valued company with billions of dollars in tax breaks and other incentives.

Of course, Jeff Bezos and Amazon ultimately decided to co-locate Amazon's new headquarters in New York City and just outside Washington, D.C., two of the country's largest, most expensive urban areas. The reality is that no matter how compelling the "Give Middle America a Chance" message was, communities like St. Louis and Erie, Pa., faced significant challenges appealing to site selectors who had their eyes on densely packed mega-cities.

Then came COVID-19.

The past several months have shown that crowded urban areas present challenges that aren't likely to change. Most public-health experts agree that population growth, accelerating urbanization and globalization will result in an increasing number of pandemics. While the economic impact of the coronavirus pandemic pales in comparison to the health consequences, the effect on businesses with headquarters in major cities has already been profound. Amazon, Facebook, Google, Microsoft and Twitter have announced plans to move the bulk of their workforces permanently to a work-from-home environment. But most companies do not offer a work product created by two thumbs and a keyboard. Manufacturers located in large urban areas will face challenges that cannot be solved simply by going remote.

Those challenges mean that communities away from the coasts have a strategic advantage they didn't have until now. When population density may increase your employees' chances of catching a deadly disease, or of being placed under lockdown to avoid that disease, the more sparsely populated streets of St. Louis or Erie may have greater appeal.

"Well-balanced cities — particularly those in the heartland of the country — that blend world-class amenities, diverse populations, but with more balanced levels of density were already on the rise prior to COVID-19 as the affordability crisis priced people out of very large markets," says Jason Hall, CEO of Arch to Park, an economic-development organization based in St. Louis. "The pandemic may accelerate this trend as people seek new opportunities in places where they can live well-balanced, well-rounded lives."

St. Louis is a major city, of course, just not one of the superstar coastal metropolises that receive the bulk of attention from so many site selectors. Other, smaller cities also see a potential shift in how companies looking to relocate view their communities. "We do anticipate that in the long run, the challenges of densely populated cities in the era of pandemics could cause a renewed interest in communities like ours," says James Grunke, president and CEO of the Erie Regional Chamber and Growth Partnership.

Even smaller cities and towns anticipate a change in their economic-development prospects. Southern Idaho's rural communities, for example, have seen success in recent years "at attracting talent who are looking for a better lifestyle and a lower cost of living," says Connie Stopher, executive director of Southern Idaho Economic Development. Now, she adds, "rural communities are looking even more attractive for the simple reason that you can safely leave your home without encountering crowds of people."

Of course, any economic developer would trade new interest in their community for a COVID-19-free world. No one relishes opportunity born from tragedy. But poverty and a lack of economic opportunity in so many smaller cities and rural communities are also public-health issues. We are, as we have been told by countless television commercials in recent weeks, entering a new normal.

That new normal will be in part defined by our ability to navigate unchartered waters. And for some companies, that navigation may lead them to cities and towns that were never before a serious consideration.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

CEO and founder of McKissen + Company
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