Because an office in Manhattan gives you access to talent from the entire heavily populated (20 million) and relatively well educated NY metro area. (Which in turn grows because highly educated people are drawn there for employment opportunities. Positive feedback cycle.)
An office in SmallTown USA gives you access to the talent of the 10,000 people who live in SmallTown and an additional 10,000 people who live in the vicinity and are willing to drive 30-60 minutes to your office. And anyone who's educated and had a choice has moved to a larger city.
Sure there's in between sizes, but the population willing to commute to a suburb of NYC is also small relative to the city proper; as is the population available to a mid-size city (which may have commute time problems of its own and doesn't have the employment draw of the hugest cities).
And people may both move irrationally in search of employment and move rationally despite huge commute times (if the greater chance at a higher income outweighs the commute time for you). Or you may move based on rational principles but incorrect premises about how long you'll have to commute. Or move despite a long commute with the expectation that working in the city will give you chances to advance in your career and soon be able to afford a shorter commute.
An office in SmallTown USA gives you access to the talent of the 10,000 people who live in SmallTown and an additional 10,000 people who live in the vicinity and are willing to drive 30-60 minutes to your office. And anyone who's educated and had a choice has moved to a larger city.