The Big Apple has everything...Or does it?
New York City is one of the most recognizable places in the world, but does this prestige come at a price? In recent years, the extreme overhead in NYC hasn’t been worth it for many organizations. When geography is one of the most significant variables in determining the overall cost of your corporate spaces, these extra expenses carry a lot of weight. As a result, some corporations have migrated away from the city and to more business-friendly areas.
These moves have forced real estate experts to analyze the phenomena and assess whether a New York City office is financially sensible. As tenant reps, we have firsthand experience helping our corporate clients determine the most advantageous locations for their properties. We have noticed that the trend away from New York City is opening a new opportunity for tenants. Space is gradually opening up, and despite its possible challenges, NYC has remained a consistent hub of finance, culture, and global connectivity.
So is New York City worth it? Well, that’s up to you to decide. By weighing the pros and cons of locating your business in Manhattan, you will be able to determine if it is a worthy endeavor. Read on to make the most informed decisions for your commercial real estate. We will discuss:
Pros
New York City’s name and reputation precede itself. An NYC office imparts a great deal of prestige and perks to its tenants. As a result, it remains one of the most desirable locations in the country for businesses and citizens alike.
Let’s look closer at the specific positives of leasing or buying a New York City commercial property.
Established Business Hub
How can you put a price on one of the world’s most influential cities? For many CFOs, the city’s prices simply reflect its strong business and cultural environment. New York City’s reputation exists for a reason. It is a global hub that offers amenities other cities cannot match including:
- Access to cultural capital, art, theater, etc.
- Home to Wall Street, the most influential financial player in the country
- Connection to the public and private sectors
- Skilled talent base and abundance of secondary education sources
- Esteemed social networking
- Convenient public transportation
As a result, even though some corporations have opened headquarters or satellite locations in other states, they still retain a presence in NYC. It is still invaluable to be in the country’s oldest and most competitive financial institution. It not only carries a powerful reputation but priceless access to the country’s economic stronghold.
Large Consumer Base with Disposable Income
The value of NYC’s human capital cannot be overstated. Its 8 million citizens carry a significant spending power. Similarly, since it is such an influential, cutting-edge environment, the buying decisions of its citizens can be used to predict global trends. Its highly educated population base also means larger salaries. This is converted into disposable incomes that can empower the local economy and bring about more earnings for businesses.
Also, its finances are further empowered by a stable tourist industry. As a result, it is an excellent spot for companies looking to capitalize on this stream of potential income.
| NYC is a top destination, hosting over 60 million visitors per year that generate billions in revenue. |
By similar reasoning, the city’s densely populated setting translates into more opportunities for consumer spending. Not only this, but NYC provides a powerful social networking scene, bringing about the likelihood that you find the right people.
Talent Pool
New York City’s environment attracts the country’s best and brightest. It is the source of a high concentration of college-educated adults. Manhattan also provides access to some of America's most esteemed academic institutions. Columbia, Fordham, and NYU all call the city home. In addition, the city’s college system (CUNY) provides steadfast educational support for NYC citizens.
Greenwich Village, home to NYU's Stern Campus
There is also an abundance of training, skills, and vocational institutions in NYC. Therefore, no matter what type of talent you’re looking for, you are sure to find it. The city’s access to skilled/educated labor is unmatched on a national scale.
The workforce is also renowned for being diverse and inclusive. People of all walks of life call New York City home. You are ensured that your talent base will provide new and varied insights according to their culture and experiences.
The wide connectivity of public transport also supports New York City talent. There is quick and easy access to different parts of the city. It allows individuals to connect to the jobs that work for them (in a reasonable timeframe) no matter where they are in the city.
Cons
A city that supplies all the perks above is sure to come at a price- and it does. Not only is NYC expensive, but it is also imperfect (especially for businesses). So, before the city’s prestige and glamour sell you, read on. We will go through the nitty-gritty details that may lead you to reconsider a corporate relocation to the Big Apple.
Expensive Taxes and Strict Regulations
New York City’s business environment is definitely not as friendly as other regions. It is the host of steep fines and expensive taxes that threaten corporate profits.
In order to maintain its wide infrastructure and progressive regulations, New York City’s taxes are among the highest in the country:
- Income tax for top bracket of earners – 14.78%
- Combined sales tax rate (City, County, and State) – 9.25%
- Corporate Income Tax – 6.5%
To put these rates into context, let’s look at Houston, Texas’ tax data.
- Income tax for top bracket of earners – 0%
- Combined sales tax rate (City, County, and State) – 8.25%
- Corporate Income Tax – 0%
The staggering difference in personal income tax rates of business-friendly cities like Houston, TX & Jacksonville, FL vs. business-unfriendly cities like San Fransisco, CA & New York, NY.
Unfortunately, the numbers speak for themselves. Corporations are risking dramatic losses by being based in the city, just in taxes alone.
Pricey Cost of Living
Perhaps the most significant con of being in NYC is that you cannot escape its expenses. New York City has the highest cost of living in the country.
| The national average is 100, Manhattan's cost of living is 255, which means that the average New Yorker is subject to over two and a half more times the expenses than the average American. |
The metric makes San Francisco’s cost of living, 194, seem reasonable by comparison.
As you can see, business-unfriendly states like New York and California have an average cost of living much higher than the rest of the country. While New York state's Cost of Living is lower than the city's, it is still far above the national average of 100.
The expensive cost of living raises the general price of living and working. As a result, overhead expenses are significantly elevated, while conversely, the power of the dollar dwindles. Let’s look closer at what the corporate tenant may observe dramatic increases in.
More Expensive Office Rent
New York City has the most expensive office rent in the country. Price tags for Class A office space average around $80/ sf. When real estate is typically an organization’s second most significant, such costly square footage will drive up your overhead dramatically. Again, New York’s rent prices supersede San Francisco’s at $68.
To fully understand how much New York office space is costing you, let’s compare what 50,000 NYC square feet costs vs. 50,000 square feet in business-friendly Houston. If you were to relocate to Houston from NYC, the savings you would experience are staggering.
More Expensive Payroll
Since the general cost to live is elevated, talent bases must be appropriately compensated to reflect that. This means that if you relocate your business to NY, your most significant expense (payroll) will dramatically increase. In addition, since a great deal of the population has attended higher education, your budget will also have to reflect their level of expertise.
Gas Prices Through the Roof
Supply and demand. The city’s densely populated, highly trafficked streets drive up gas prices exponentially. Extreme gas prices reduce consumer spending across the board.
State by state comparison of the average gas price per gallon. As you can see, states like New York and California suffer from much higher gas costs.
For businesses, expensive gas means a pricier supply chain. However, industries that rely on transportation and production will be hit the hardest. As a result, it may not be wise for such organizations to call NYC home right now.
Competition
New York City’s business and real estate environments are fiercely competitive. At best, this will encourage you to be on top of your game. It is truly a sink or swim habitat. At worst, you can be squeezed out of finding the best properties or candidates (and say goodbye to the possibility of finding them at reasonable rates).
Since everyone is competing to secure the best of the best, price tags go up. Again, it comes down to market supply and demand. If there is pressing demand, the supply can raise its fee. If you do find attractive prospects in NYC, expect them to come at a price. It is an unfortunate and true caveat of being stationed in the city that never sleeps.
Companies looking for the best talent and office space can do anything to achieve this goal. Are you prepared to do the same?
Should You Locate Your Business in NYC?
It is up to you to decide whether New York City’s pros outweigh the cons. For the right organization, it can be a perfect fit. The city carries an invaluable reputation and connectivity. However, as discussed, these features do not come cheap.
If New York City isn’t suitable for you, you have options. There are innumerable business-friendly regions across the country. They can provide you with a city environment but at far more reasonable costs.
No matter what you decide, tenant reps can help you work with your options. Their invaluable market knowledge can find you the best geographic locations, properties, and prices for your budget.
If NYC isn't the right city for you, learn more about the country's top cities for businesses!
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