The Rise Of The Outpost Economy: Three Things Causing A Realignment Of The Employment Landscape

Originally published to Forbes

Ryan is Co-Founder and Principal of Graceada Partners, leading investment activity and heading up the asset management division of the firm.

Last year was an economic depressor. The hardships of Covid-19 lockdowns and restrictions set us back considerably and changed our perspective on everyday events. However, there was a fascinating silver lining. Last year propelled us further along the trajectory that we were already headed.

This might seem counterintuitive, but the effects of the pandemic on the economy actually changed the economic foundations that were set in place. It led to what our firm calls the “Outpost Economy”: a more dispersed economy where employment bases are centered less around major cities and instead are increasingly around smaller cities that offer a high quality of life. And while the lockdowns did cause immense economic stress and grief, the long-term outlook reached the plane of view much quicker because of it. Here are the three components that are spawning alterations in the spheres of employment and, subsequently, real estate investment. 

The Inevitability Of The Next American Frontier

Like expansion of any kind, whether it be of the “New World” in the 16th century or the Star Trek catchphrase “Space: the final frontier,” such endeavors happen gradually. For example, the era of the American Frontier spans centuries. That said, a new American Frontier was bound to need exploration, and Covid-19 was the spark that created its fire. While Americans rushed in droves to the Great Plains and West Coast over a hundred years ago in search of new jobs and a better life, people in the 21st century are going through a similar scenario thanks to the work-from-home phenomenon.

Real estate prices drastically changed during the California Gold Rush, with newcomers being able to “stake their claim” to land in the late 1840s since San Francisco had a population of around 1,000 in 1848. A few years later, this led to rentals of hotel rooms in San Francisco costing $10,000 per month (around $300,000 in 2015 money) because they became prime real estate locations, according to the Smithsonian. Similarly, a significant realignment is taking place in this city — and others like it — as workers realize that if they can perform their jobs from home indefinitely, then they can call anywhere home. Why pay three grand a month for a small New York City or Bay Area studio when you can pay $800 a month for a bigger place in suburban Raleigh?

A Changing Workplace

This realization that workers are no longer tethered to a 30-mile radius from their office building is changing the workplace. As I already mentioned, some individual workers are leaving densely populated cities in search of quieter lifestyles and more affordable living. The other aspect at play, however, comes from the vantage point of corporations centrally located in major cities watching this sea of workers dispersing elsewhere across the country. 

These businesses are recognizing this demographic change — mostly young professionals settling down in places they actually want to live — and this is leading to these corporations taking a “hub and spoke” approach to their business strategy. This is where smaller regional hubs form, decentralizing the main office and causing smaller offshoots to spring up nearer to where workers have moved. In essence, companies are moving to gain a foothold where their employees choose to live, not the other way around. Because of corporations increasing the demand for space in these emerging secondary markets (places such as Austin, Texas; Sacramento, California; and Charlotte, North Carolina), there will be a price increase on commercial real estate in these cities. This is why I don’t believe, despite the effects of Covid-19, that office demand will go down across the country. Interestingly, I anticipate it will actually go up in a lot of these secondary markets.

Population Spikes Lead To Economic Rebirth

With a decentralized economy, jobs and businesses will appear scattered across the United States. However, certain cities will experience a financial renaissance as young professionals flock to buy up or rent housing and wealthier corporations follow a few lengths behind, hoping to hire and establish outposts for a new target market. In fact, as the Washington Post notes, last year’s homebuying boom was driven by younger generations, such as millennials, who made up the biggest portion of homebuyers in 2020.

If the realignment of white-collar jobs happens first en masse, then smaller businesses from restaurants to bike repair shops will begin springing up to capitalize on the new market share. Over the coming decade, I envision relatively smaller cities like St. Louis; Modesto, California; and Buffalo, New York becoming known for their affluent neighborhoods and unique points of interest. As the Outpost Economy continues to grow and take shape, the demographics of the United States may begin changing to accommodate this new system taking hold.