The Great Urban Exodus: 6 Questions to Help Businesses Decide Whether to Stay, Relocate, Go Remote.

Photo: Pr.K.S.Wilson

Businesses with a physical presence in expensive American cities such as New York, San Francisco, Los Angeles, and even some international cities like Hong Kong will all be coming to a major decision point. For some, that time is now. Should they go remote, relocate, or wait out the COVID-19 pandemic and growing civil unrest in these areas? This article will provide key questions to help business leaders decide which option, if any, is worth considering.  Before delving into specifics, it is important to understand what led to this choice being forced upon business leaders and why both people and businesses are already fleeing these cities in droves.

The urban exodus began when people started realizing that their old ways of close-proximity living and being shoulder-to-shoulder in crowded streets wasn’t the best way to avoid catching COVID-19. This thinking caused people to begin leaving cities permanently in favor of more rural and suburban areas, not just for social distancing purposes, but to avoid paying outlandish taxes and real estate costs for minuscule square footage when they lost their job or their employer implemented work from home measures. 

As if the pandemic weren’t enough to drive away urbanites, growing civil unrest, looting, riots, and general increases in crime soon followed, causing this exodus to really begin accelerating. All of these events combined has kicked off a vicious cycle that is having catastrophic sociological and economic effects nationwide.

This cycle is only becoming more intense, causing more and more people to flee major cities at a more rapid pace. As a result, businesses there will soon have to make a strategic decision on whether to stay in the city or leave. Before making such a critical decision with substantial risks involved, business leaders should attempt to answer the following questions:

1. Do you think the world will ever return to business-as-usual? 

This is the most important question to ask. If leaders think everything will go back to normal, then the following questions are irrelevant. They should be forewarned though, because it is impossible to know for certain whether the pandemic-induced disruption will be temporary or permanent. Love them or hate them, the World Health Organization doesn’t see the world going back to business as usual. Many business leaders seem to agree and are permanently transforming their companies accordingly, which includes relocation or going entirely remote. So, while the future remains unknown, and some of the most brilliant leaders are leaving, it may be worth it to pay attention and understand why. 

2. Is it absolutely necessary for the company to maintain a physical presence in the city? 

For most large corporations, historically it made sense to have their headquarters, flagship store, or some other physical presence in major cities. This reasoning was mainly based on the need to be near more consumers, facilitate the ease of deals, minimize business travel, and perhaps even invest in and show off prime real estate. One of the other major appeals of urban real estate is increased foot traffic. But when that foot traffic is significantly reduced or absent completely, it causes those expensive offices or storefronts to now be empty due to staff working from home or being laid off. Therefore, it is becoming increasingly difficult to justify the astronomical costs associated with this expensive real estate, especially if it is simply for show or the sake of a presence alone. 

3. Are your employees unable to work remotely?

Speaking of remote work, this is another key consideration as to whether it makes sense to maintain a presence in major cities. As many leaders have been finding, employees are proving to work remotely quite well, and in fact, those that are able are proving to substantially increase their productivity, work/life balance, and quality of life while office work, in-person meetings, and extensive business travel prove to be nothing but a waste of time and money. With the added benefits of remote work front and center, it is safe to say that unless a company’s business model or industry requires real estate and a physical presence such as hospitality, medical, retail, or restaurants to name a few, then being in the city doesn’t make sense. 

4. Are in-person transactions a critical component of the business model? 

For businesses that have historically required in-person transactions, the pandemic has caused substantial disruption because of the need to minimize human interaction and to be in compliance with social distancing guidelines. To respond to this, many businesses have either made quick fixes of requiring masks, installing plexiglass shields, and strengthening sanitation protocols. However, some have completely transformed their business models utilizing automation, robotics, delivery, virtual, or online services to minimize or even eliminate that human-to-human interaction. While the human element will never be eliminated because robots need to be maintained, for those businesses that can implement these digital technologies, they will require much less real estate or physical presence, if any at all. 

5. Is there enough cash reserves available to wait out the pandemic?

For some businesses, the thought of abandoning their home city or building is out of the question. They would just prefer to weather the disruptions rather than relocate. While that may not be the best strategic or economic decision, staying put could be justified if they have adequate cash reserves to cover the slowdown in sales. Historically, 3-6 months' worth of expenses in cash reserves would have been a conservative amount, but with no end to the pandemic in sight, realistically 12 months or more would be ideal. That way, even if the pandemic and economic slowdown drags out, they could afford to remain in the city a while longer, assuming other cost-cutting measures were implemented. Still, even with those reserves in place, keeping up expensive city real estate isn’t the best use of that cash. 

6. Are revenues predictable and can they be stabilized? 

Covering expenses with substantial cash reserves is one way to justify staying in the city, but even the most effective cost-cutting measures cannot save a business if revenues are not predictable and stable. One of the most effective means of preserving and forecasting revenue is the subscription model. Being able to predict revenue allows leaders to make informed business decisions based on the availability of financial resources to boost profitability. Now, some business models (SaaS) are going to have a much easier time doing this, while others may not (Retail). For those that are able to ensure a consistent revenue stream, they have more freedom to do as they wish, including overpaying for prime city real estate. For those that cannot, then again it would be risky to remain in an area with high costs without some sort of consistent revenue stream. 

Now that these questions have been explained, if the reader’s answer is “No” to most or all of these questions, then it may be a wise decision to consider relocating or going remote, or perhaps a hybrid model of the two. Of course, there is much more to it because of each business's unique circumstances, and this decision should be made considering many other factors than those listed above due to the risks involved. 

Even if businesses ultimately decide to stay put, COVID-19 has been the much-needed wake-up call that exposed many vulnerabilities, inefficiencies, and wastes that had long gone unnoticed. Leaders that have been willing and able to modernize their companies accordingly will ensure their company’s financial future from the reduced costs. Then, businesses can take these additional savings, and put them into their cash reserve fund so the next time there is a major unforeseen disruption, they have adequate reserves to ensure their longer-term survivability, wherever they choose to operate.