It's no surprise that 18-hour cities like Kansas City, Minneapolis, Denver, and Nashville are becoming more and more common among Americans - particularly entrepreneurs who want to run their businesses without the massive overhead that comes with cities like San Francisco or New York. According to a 2017 report by RENTCafe, you'll spend almost $3,400 per month to rent a one-bedroom apartment in the former and around $3,700 in the latter. A recent survey conducted by Porch, notes that 85 percent of Millennials are willing to relocate for a job.

While 24-hour cities provide companies with access to a larger consumer base, more robust business networks, and a range of other advantages, there are also significant drawbacks. The cost of rent alone is an enormous drain on a company's bottom line, as are the exorbitant licensing fees and taxes that are often imposed in bigger cities. What's more, 18-hour cities still give businesses access to a huge number of consumers without as many competitors crowding the market.

There are plenty of reasons why these cities are appealing for entrepreneurs, and you should expect these reasons to multiply in the coming years.

Minimizing the cost of doing business

In 2016, KPMG released its Competitive Alternatives report to explore the "most significant business cost factors in more than 100 cities and 10 countries around the world." The report found that New York, Los Angeles, San Francisco, and Boston all had higher business costs than the U.S. baseline (the average of the four largest metro areas on the country). Meanwhile, not a single city in the midwest exceeded the baseline.

According to a 2018 report by PwC and the Urban Land Institute, the "average cost of doing business, as reported by IHS Markit, in secondary markets is 16 percent lower than business costs in primary markets." This gives 18-hour cities like Cleveland, OH, Nashville, TN, and Charlotte, NC a critical advantage over their larger competitors.

As noted above, business costs are driven by everything from rent to public policy. Here's an example of how the latter can vary substantially from city to city: In a 2017 report on the cost of doing business in California and the western U.S., the Rose Institute of State and Local Government at Claremont-McKenna College noted that the "business license fee for a medium-sized retail business in San Francisco ... is $13,500 a year." The fee in San Antonio, TX, on the other hand, is $0.

Affordable housing for employees

Many of the costs that companies have to absorb overlap with one another. For example, when average rents and property values are higher in a city, that doesn't just mean you'll be paying more for commercial space. It also means the cost of living is higher for your employees, which means you'll have to pay them more.

Large companies are becoming more savvy when it comes to choosing cities for expansion based on housing costs in addition to talent pools. Think about Amazon's current campaign for their second headquarters (HQ2): Nashville, Denver, and Northern Virginia are all contenders. Much of this has to do with lower rents or mortgages for future employees.

Finally, the PwC and Urban Land Institute report found that the "outlook for secondary markets increased nearly 12 percent compared with our 2013 survey. Over the same time period, the investment outlook for primary markets has decreased by 6 percent." One of the main reasons cited in the report won't come as a surprise to many residents of 18-hour cities: "These markets have a lot to offer to businesses and residents, suggesting that the current level of demand will be sustainable going forward."

The influx of Millennials in 18-hour cities

For many Americans, the word "Millennial" conjures images of restless young professionals moving into tiny apartments in coastal cities like New York, San Francisco, and Los Angeles. The rent may be astronomical, but Millennials are willing to pay it because they want the jobs, amenities, and nightlife that only a 24-hour city can provide.

Here's the thing about this perception of Millennials and the places they choose to call home: It's wrong. While major 24-hour hubs remain attractive destinations for Millennials, smaller 18-hour are becoming increasingly popular.

This isn't just because Millennials are being priced out of cities like New York and Los Angeles - it's also because 18-hour cities often make more sense as they get older. As Porch's 2018 Millennial Home Buying Report puts it: "Not only are Millennials becoming more financially secure, starting to have children, etc., but they're also increasingly committed to one of the most fundamental rituals of American adulthood: Owning a home." It's much easier to purchase a home in Kansas City than San Francisco.

One of the reasons why 18-hour cities are enjoying so much investment and growth is their surging Millennial populations. The PwC and Urban Land Institute report includes five-year growth rates for populations between the ages of 15 and 34, and the rates are dramatic in many 18-hour cities. A few examples: Austin (20.3 percent), Charlotte (15.3 percent), Denver (13.2 percent), Nashville (11.1 percent), and Raleigh (15.4 percent).

In many cases, 18-hour cities are taking active measures to attract and retain Millennials - from the installation of light rail systems to extensive public investment in their downtown areas.

They have good reasons for doing so. Millennials are more likely to have bachelor's degrees than members of any other generation, and a college-educated population spurs economic growth and increases tax revenue. Millennials are also about to surpass Baby Boomers as the largest generation and they're the biggest group of consumers in U.S. history. So wherever there's a high concentration of Millennials, expect businesses to follow.

Yours should be no exception. Considering the low cost, promising growth rates, livability, and Millennial-driven economies of 18-hour cities, entrepreneurs should take them very seriously as potential homes for their businesses - as well as potential homes for themselves.

Published on: Sep 12, 2018