Why would companies choose to set up new operations in a high operating cost city?

Ultimately, you should choose the option that best supports your financial well-being while striving to keep the relationship amicable.

I think broader consumer taste is killing malls, which includes online shopping, but also even where people are choosing to live and how they are spending their time/money, more broadly.I worked for a company that bought a failing mall back in 2012 (online shopping was "killing retail" then too), redeveloped most of it into more open air power center and sold.  

It's a matrix where you'll want to find something that is on the spectrum that is in alignment with your risk tolerance and understanding. 

PM companies are like business partners, so choose wisely!

If you are limited to those areas for residency, and you choose to keep that job, you are going to have to either a) wait for a couple years and save up a heftier down-payment, b) change your strategy like you said and go for houses further away (do flips, STR or BRRR).Or, if you are sold on the house-hack concept, at some point you might have to look at a different job that allows you to move where house-hacking will work....

As for tenant demand, choosing properties in core locations is more stable.I find it easier to add value to a mediocre but prime location deal than to strike a good deal on a substandard property. 

Quote from @William Causey: When choosing a private money lender, how do you weigh the importance of flexible loan terms versus fast closings?

A lot of investors based in markets like California and New York are choosing to purchase their investments OOS in the Midwest because of the affordability and numbers making more sense.

State your legal theory if you choose to take an adversarial position.