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Why would this android phone app for this IP camera need location services to be turned on before it gets set up?

Surely that's a security risk. If the camera company's database is ever hacked, an attacker would have both the exact location of the property and the means to view the property to see who was around!

Is there any technical reason why location is required for an app to set up an IP camera? (Another data point: The Google Home app also requires location permission to set up the Home Hub device).

Is it safe to turn on location services and allow the app to determine my location during setup of the camera?

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No, there is no need for geo information to set up or connect to a IP cam. The risk is only in providing data to a company even if it doesn't need it, depending on how they will use it. It depends on the company...

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I found a way to work around the location requirement, by installing a Fake GPS app and configuring my android device to use it in the android developer menu.

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