While businesses once sought to base their headquarters in major cities, there has been an ongoing trend of office relocation to the suburbs and smaller, more affordable locations. Similar trends are also evident in individual people moving out of congested cities and finding a more enjoyable life in the suburbs. They have more room to raise families, enjoy the outdoors and get away from the fast-paced lifestyles that cities encourage.
There are both advantages and disadvantages of relocating a business and moving it out of the city. We’ve compiled the pros and cons of an office relocation from major cities. If you’re asking yourself, “Should my business get out of the city?” learn about the impacts of business relocation below and why relocating during COVID-19 is a good idea.
The Trend of People and Companies Moving Away From Big Cities
Companies have been moving away from big cities in recent years, and the shift seems likely to continue as more of their employees flock towards suburban living.
Why People Are Leaving Cities
With a healthy housing market, low unemployment rates and a growing economy, many millennials, born between the years 1981 to 1996, have started leaving apartments in the city. They’re now purchasing houses in the surrounding suburban areas.
The Great Recession of 2008 led to fewer jobs and lower savings for millennials than generations past. Over a decade after the Great Recession, many millennials have had the opportunity to secure reliable employment and bolster their savings.
Now more millennials are looking to settle down and have their sights set on life in suburban areas where the cost of living is lower. Many want room to start a family outside of the hustle and bustle of city life. The real estate listing views in suburban zip codes have jumped by 13%, double the growth in listing views for urban areas, which further confirms people are migrating to suburbs.
Opportunities for remote work and flexible work-from-home policies allow people to do their jobs while located nearly anywhere globally, encouraging people to get out of the cities they once lived in due to necessity.
Why Companies Are Leaving Cities
It makes sense for companies to follow where their employees are going, and this is a primary reason why these trends overlap. Suppose more of your workers relocate to suburban areas outside of the city and work from home a few days each week while only coming to the office when necessary. In that case, companies can see a great benefit from also moving to these areas.
Office retail spaces in suburban areas are much less expensive than comparable offices in major cities. If your company plans on continuing to allow employees to work remotely, you’ll likely need a smaller office space than you once did. Companies that no longer need office space for every employee can benefit from reduced rent prices in suburban areas. Suburban offices still provide a central location for workers that need to be in the office and those that prefer to work in-person.
Major cities such as Los Angeles and New York City also have higher tax rates than suburbs nearby or even in neighboring states. Companies realize they can cut high costs and lower their tax burden by relocating to cheaper areas.
What Role Has COVID-19 Played on Business Relocation?
The population growth decrease in the largest cities started happening around 2016, and the trend has continued steadily with more people moving out of cities and into affordable suburban areas. This trend isn’t new, but COVID-19 increased the rate of people and companies deciding to relocate.
The Transition to a Remote Workforce
COVID-19 caused many companies to transition to a fully remote workforce. While some companies already had this capability, they often limited how frequently employees could work from home. Other companies quickly adapted, and now 42% of people are working remotely. The pandemic washed away many of the hesitancies companies had about allowing employees to work remotely. Businesses and employees have demonstrated working remotely can be just as effective as being in the office.
How COVID-19 and a Remote Workforce Impact Business Relocation
The mass shutdowns across the country led some businesses to suffer a loss of revenue. Company executives are left with tough decisions to cut costs and stay afloat in these tumultuous times. Lower income and a workforce that can effectively work anywhere mean companies are relocating to areas with lower operation costs and more business-friendly tax policies.
In places like New York City, the Bay Area and Silicon Valley, business leaders realize the high real estate costs and lack of warehouse availability aren’t conducive to the bottom line. They look to smaller cities like Boise, Reno and Jersey City to save money. For instance, Nevada only implements the federal corporate income tax of 21%, while California has a much higher rate of 28%. That 7% savings in taxes between the two states is significant enough to lure businesses out of major hubs like Los Angeles.
Many business leaders have decided to relocate their companies to areas where they can pay less rent for office space and save money on taxes. They can then keep their employees on the payroll while still cutting costs. Some employees will not return to the office and will continue to work from home permanently, so it’s easier to relocate companies to save money.
Why Move Your Business Away From the City?
COVID-19 has caused companies to move out of major cities faster than they would’ve otherwise. There are many benefits of relocating your company out of the city and into the suburbs. Here are some of those advantages of moving your business out of the city:
Lower taxes: Most major metropolitan areas in the U.S. impose high corporate tax rates. Reduce your tax burden by relocating your company from the city into neighboring suburban areas. Suppose your company is in a state with high corporate income taxes, like California’s 8.84% or New Jersey’s 10.05%. Your business may benefit by relocating somewhere with lower taxes, like North Carolina, with a 2.5% tax rate. Consult a certified public accountant (CPA) to decide which suburb, city or state will benefit your business with the lowest tax burden.
Lower office rent: Office rent costs are among the highest operating expenses companies face, primarily in major cities. By relocating your business from San Jose, the central hub of Silicon Valley, to a smaller city like Boise, Idaho, your company can reduce its office rent by over 65%. Suppose your business is no longer paying the high rent costs of major cities. You could put that money toward opening smaller office hubs in various locations. Your remote workforce can use those if needed while you still have a central location.
Lower cost of living: Smaller cities and suburban locations have a lower cost of living than major United States cities. Your employees’ salaries will go further with a lower cost of living, and they’ll likely see a higher quality of life. You can also offer lower wages to new employees because the area is cheaper, and employees no longer require the high salaries places like New York City demand.
More convenient commute: A high percentage of your employees are likely already living in the suburbs. An office relocation to the suburbs offers those employees a much easier commute where they no longer have to fight city traffic every morning and evening. Shorter commutes make employees happier and give them more time to pursue their hobbies and passions outside of work.
Ease of communication through technology: Technology makes it easier than ever to stay in contact with your employees regardless of the distance between you. You can have meetings through video and record them in case you need to review something. You can also monitor employee productivity through several different software platforms to ensure your employees actively work while remote.
Why Keep Your Business in the City?
Some companies may want to stay put in the city to avoid relocation and for other benefits. There are several advantages to keeping your business in the city:
Larger talent pool: Companies often benefit from the large population of people living in cities looking for work. Cities attract talented and diverse employees interested in the many opportunities available to them. By staying in the city, your business can attract top talent from nearby.
Availability of public transportation: Most cities have convenient public transportation like buses and subways that allow employees to work without a car. Likewise, trains and airports are customarily located closer to cities than suburbs. If your employees often travel for work, staying in the city is an added convenience. Some of your employees may rely on public transportation to get to work, so staying in the city benefits them and you.
Convenience of client meetings: If your company works with other businesses and hosts client meetings, remaining in the city offers a central location easy for others to travel to. Some clients may be opposed to traveling outside of the city for a meeting because it would take them longer than walking to your office or taking a quick taxi ride.
Desirable location for younger workers: Many younger workers move to cities after graduating from college, and they aren’t interested in settling down in the suburbs. They appreciate the fast-paced lifestyle cities offer and the many amenities like bars, restaurants, museums, parks and other activities. Remaining in the city is a good idea if you’re looking to retain or gain a younger workforce.
Developed community: Cities are home to business communities that support each other through networking and mutual services. Suburban areas often lack this community that benefits both employees and companies.
9 Factors to Consider When Relocating an Office From a Big City
Deciding to relocate your office away from a city is a big decision. Consider the impact of business relocation and keep these nine factors to keep in mind when deciding whether relocation to the suburbs is right for your company:
Cost: Your company’s size and the distance you’re moving will have the most significant impact on the cost of relocating an office. Your employees may also need support through relocation assistance, which can become costly. You should weigh the price of moving against the potential benefits and long-term savings to ensure relocating is beneficial for your company.
Employee impact: Consider where the majority of your employees live before deciding to relocate. Moving your office to the suburbs could benefit your workers if they already live in the area. But if most of your employees live in the city, an office move to the suburbs may pose major inconveniences. Your new location should be as accessible as possible to your employees to avoid losing staff due to the move. If your employees can permanently work from home, this is less of an issue.
Taxes: You should always consult with an accountant before moving your business. While many suburbs will have a lower tax burden than metropolitan areas, it’s still essential to understand exactly how the move will impact your company’s taxes. An accountant will ensure you know all the details before committing to a move.
Client impact: Clients are vital to any company, so you need to consider how your move will impact your customers and partnerships. If most of your clients are in the city, it may be best to stay near them to make meetings easier. If they’re located in the suburbs, or you’re looking to focus mainly on suburban clients, then moving would benefit your company.
Growth potential: You should think long-term when relocating your office. If you have plans to expand at any point in the future, make sure the suburbs you’re moving to can facilitate that growth. Your new location should have enough labor force to meet your growth goals, and the area should help your continued growth.
Service providers: Contact all necessary service providers like internet, security, water, telephones and electricity to ensure everything meets your company’s requirements. If your business needs high-speed internet, confirm with the provider that they have sufficient speeds for your business operations.
Sufficient space: Your new office location should have enough room to house all your products, office supplies, data storage and staff. If your employees have transitioned to mainly working from home, then you can probably rent an office with much less space than you would need otherwise. Ensure your office has enough space for current and future employees.
Travel expenses: If your employees often travel for work, make sure there’s an airport nearby to facilitate easy travel. If you move out of the city and into the suburbs, the closest airport may be regional and cost more money than larger airports in major cities. Consider travel prices when relocating.
Office furniture: You should plan to get rid of old office furniture and supplies when you move because of the high costs of moving large furniture supplies. It may be more cost-efficient to shop for new furniture and get custom supplies that work best for your new location.
Supply Your New Office With Arnold’s Office Furniture
Arnold’s Office Furniture can supply you with a wide variety of options to furnish your new office. Our Sunline cubicles are fully customizable and cost about half the price of furniture from competing brands. You can configure our cubicles in many ways to fit any office space and also spread employees out for adequate distancing. We offer layout design services to ensure your office blends functionality with comfort and aesthetics.