Across America, corporate professionals have taken notice of the gap between business-friendly and business-unfriendly states. An area’s cost of living, taxes, and corporate regulations all determine how conducive it is to a company's financial growth.
As tenant reps, we have seen how starkly real estate and living costs differ across the country. We have noticed how our corporate clients have benefitted by getting out of the most expensive places to work and live and relocating to more financially sensible areas.
The areas that could save the most are those with the current highest expenses. New York City and San Francisco have the highest rates in the country. On the other hand, Houston and Jacksonville will give you that city feel at a greatly reduced rate.
We are not advocating for you to relocate. Your current area may be the most conducive for your company’s growth. Here we are just pointing out the price difference and potential savings you could encounter if you transfer to a business-friendly area.
If you are curious about this move and how it could influence your overhead costs, this article is for you. We have included three of the main expense factors:
2. Office Rent
3. Payroll
Each influences the pricing of the others in a never-ending feedback loop.
1. Cost of Living
An area’s cost of living (COL) is the average amount of money required to live comfortably.
How is Cost of Living Determined?
Cost of living metrics compare the price of goods, services, and basic expenses across regional differences. Factors like housing costs, health insurance, grocery prices, and taxes are all included within this metric. The outcome tracks the affordability of different areas.
(Cost of Living Where the National Average is 100)
How to Use Cost of Living
The cost of living is intended to compare the average spending necessary to live a particular lifestyle. The national average is 100. Based on the costs associated with living in different cities, they are given a calculation either above or below that number.
When an area’s cost of living is high, everything is more expensive. This includes prices of:
- Gas
- Labor
- Other everyday items
As a result, you can expect the power of the dollar to dwindle in these regions.
How Does COL Affect Business?
When consumers do not have as strong an ability to spend freely, there will be less stimulation within your local economy. Operating a business in expensive areas will also dramatically increase your overhead costs.
You now have the availability to consider whether or not these areas are worth their high price tags. By moving to more cost-effective regions, your company will have more opportunities to expand financially.
If you are in one of these cities with a high cost of living, you already know it. But, do you know just how dramatic it is compared to the national average?
Areas of Highest Cost of Living
- New York: 148
- California: 142
New York and California are just shy of being 50% more expensive than the national average. So let’s look at how they compare to business-friendly areas within the metric of the national average.
Obviously, there is a glaring difference. When your organization fronts higher costs from all sides, your profit margins will likely be lower.
2. Office Rent
The difference in cost of living is not the most staggering metric. The average office rent price is significantly different from business-unfriendly to friendly states.
For this reason, cities like Houston and Jacksonville are quickly becoming optimal locations for companies to move to. States across the sun-belt have lower costs of living, and accordingly cheaper rent, business taxes, and operating expenses.
Notice the difference in price for a square foot in office space in popular cities for business.
Example Scenario: Moving From New York to Jacksonville
On paper, these numbers are wildly different. However, to further put them into context, let’s compare the total savings you could experience in rent alone by moving to a business-friendly city.
Let’s say you have 100,000 square feet of commercial space in New York City. You have the option to renew your lease for another five years starting at market value. (For this calculation, we will work with a flat rate; no escalations included).
Five years in NYC with your current square footage will run you $37.5 million.
On the other hand, you have the opportunity to move your operations to Jacksonville. The same square footage in Jacksonville for five years will cost you $12.5 million at market value.
The savings exceed $20 million in rent alone. The savings metric would only increase when you consider operational expenses, elevations, and cost of living disparities.
3. Payroll
Real estate costs like rent are important, clocking in at the second or third most significant commercial expense. However, do you know what the highest cost is? The factor that dominates the budget of most companies is payroll.
How Payroll is Linked to an Area's Cost of Living
The average pay rate of professionals is closely tied to the area’s cost of living. Areas that are more expensive to live and travel within need to compensate appropriately.
The Salaries of Common Professions in Popular Cities
Let’s look at common jobs and the difference in labor costs associated with them. Once again, you will notice that San Francisco and New York have higher rates.
When considering the breadth of large organizations, the individual price differences will quickly add up.
The War for Talent
Businesses are finding a new front on the war for talent. To perform competitively, you need the best people. These professionals are everywhere, but the rates they work at vary. A major step to reducing your organization’s overhead costs can be moving to areas with lower living costs. Accordingly, payroll expenses will be significantly reduced.
Businesses are already moving to the Sun-belt. Tesla, Oracle, and Hewlett Packard have all joined the push towards Texas and away from California.
At the same time, Goldman Sachs is leading the pack down to Florida from New York. However, with over 300 financial services companies having moved to Florida, the potential talent pools are only sure to dwindle more.
It is up to you to capitalize on the opportunity now.
The work from home revolution has opened our eyes to greater possibilities of working spaces. If you need them, you now have the option to rethink where they are. Does it still make sense to pay for the elevated rates of business-unfriendly cities when organizations are shifting work online?
How Can Business-Friendly Areas Affect Me?
If you decide you want to take advantage of areas that have a low cost to work and live, you have options to do so. Moving can be a tough decision for an organization to make. However, it does not have to be done all at once.
You can open satellite locations within these regions while your headquarters remains in New York or San Francisco. Also, relocating does not always mean a cross-country move. You can greatly benefit too from moving to the suburbs.
No matter what real estate decision you want to make, tenant reps are experts who can help you. They can help you decide if relocating is right for you and how you could stand to benefit should you choose to pursue it. They can also help you throughout the process of conducting market research, isolating the most optimal areas to move to, and negotiating the terms with your new landlord.
Want to learn more about relocating? Check out this article.
Wondering where to begin?
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