If your business is not in the right location, you may be suffering more than you know. Real estate decisions should not be taken lightly as they are consistently one of the highest costs businesses take on.
If you’re responsible for these choices, you need to know you’re making the right decisions.
Luckily you don’t have to do it alone.
As tenant representatives, we have spent three decades identifying the right moves for our corporate clients. This requires thorough market intelligence to weigh the most optimal locations in terms of taxes, cost of living, and office rent.
We have found a stark separation between business-friendly and unfriendly cities, which influences corporations’ ability to thrive under their conditions.
We’re not saying you need to move away from the following cities as they may have what your organization needs. Instead, we are just laying out that data that may make you think twice before renewing your expensive office lease.
Let’s go through the most business-unfriendly cities now.
1. San Francisco
If you work in San Francisco, you already know how expensive it is. Elevated costs across the board make this popular destination a logistical nightmare for businesses looking to save.
Let’s go through why.
Taxes
San Francisco's tax rates make it difficult for businesses to keep their profits. Let’s go through their tax rates for a closer look.
- Income tax for top bracket of earners – 13.3%
- Combined sales tax rate (City, County, and State) – 8.63%
- Corporate Income Tax- 8.84%
Cost of Living
Cost of living metrics track the affordability of different cities. The number is determined by comparing the price of typical goods and services across regional differences.
For scale, the national average is 100. Cities on the lower end of the spectrum are Memphis, Tennessee at 76 and Baltimore, Maryland at 88.
San Francisco’s is 269. Let that sink in.
The number speaks for itself. General life expenses in San Francisco near triple the national average. It is simply not a reasonable metric for most Americans and businesses to survive.
Office Rent
The office rents in San Francisco are among the highest in the country. Currently, Class A office space is $67/ square foot.
When you place it in the perspective of more business-friendly cities, you can understand how much San Francisco businesses are suffering in rent alone.
For example, in Jacksonville, Florida, the going rate for Class A properties is $27/ square foot.
Let’s go through the savings you could encounter in rent alone if you were to move to a business-friendly city like Jacksonville, Florida.
2. New York City
The city that never sleeps is not too kind to its companies. As a result, there is currently a mass-corporate migration away from NYC and to the sun-belt, where price tags are lower for nearly everything.
Let’s look at some of the reasons why organizations are considering a move out of Manhattan.
Taxes
New York taxpayers and businesses do not find themselves with favorable conditions. In each metric, the taxes increase the price tag of life and business. Let’s look at the numbers.
- Income tax for top bracket of earners – 14.78%
- Combined sales tax rate (City, County, and State) – 9.25%
- Corporate Income Tax- 6.5%
Cost of Living
Remember that the national average for living cost is 100. New York’s is 187, making it almost 90% percent more expensive to live there than the rest of the country.
In areas of high living costs, the power of the dollar is weaker. Individual consumers have less ability to freely spend. This can negatively impact business performance and the overall quality of life.
Office Rent
The going rate for office space in New York is the highest in the country. The typical Class A building will cost $80 / square foot.
Let’s compare this shocking metric to Jacksonville again, as it is a premier business-friendly city.
3. Los Angeles
It’s not a secret that California is tough on businesses. The state’s laws and prices are often not conducive to prolonged financial success.
Like San Diego, Los Angeles is not the wisest place to station your organization. Let’s look at the rates that seal LA as a business-unfriendly city.
Taxes
Los Angeles businesses are hit with excessive tax rates in every category.
- Income tax for top bracket of earners – 13.3%
- Combined sales tax rate (City, County, and State) – 9.5%
- Corporate Income Tax- 8.84%
Cost of Living
The cost of living number for Los Angeles is 173, about 70% greater than the national average.
In regions like Los Angeles, where the cost of living is high, there are more overhead costs in every part of life.
To account for these increased expenses, the average salary of professionals is higher, reflecting the prices.
For businesses, this means dramatically raised payroll costs. When payroll is typically the most significant expense companies are responsible for, occupying regions of high living cost will make overhead expenses soar.
Office Rent
The average price of Class A office space in Los Angelos is around $48 / square foot. While this is not as staggering as our other cities, you still stand to save by moving to a city like Jacksonville.
Let’s examine the savings you could encounter over five years.
4. Chicago
In terms of the business environment, Chicago is one of the worst places in the country to be stationed. So let’s look at some of the reasons why it doesn’t make economic sense to operate your company within Chicago’s limits.
Taxes
Chicago has some of the highest tax numbers in the nation. For businesses, these expenses add up quickly.
- Income tax for top bracket of earners – 4.95%
- Combined sales tax rate (City, County, and State) – 10.25%
- Corporate Income Tax- 9.5%
Cost of Living
Chicago’s cost of living is closer to the national average than the cities above. It is ranked at 107, making it more affordable for businesses and consumers than the aforementioned cities.
However, many people raise concerns over Chicago's current quality of life for its rates. High degrees of violent crime have many people leaving the city.
Overall, the cost of living is close to the national average, but the quality of life threatens the potential success of businesses.
Office Rent
The average rent price for Class A office space in Chicago is around $37/ square foot. Of course, this pricing is far more fair than San Francisco, but you could still benefit from moving to a more business-sensible city.
Let’s look at how much you could save over five years with 100,000 square feet of office space.
5. Philadelphia
Philadelphia’s high taxes and strict regulations challenge business growth at every turn. Despite being more affordable than New York or San Francisco, Philadelphia is difficult for new and transplanted businesses alike to get a foothold.
Taxes
The statistic that denotes Philadelphia as a business-unfriendly city is its taxes. Its staggering business and sales tax charges will have your company paying through the nose.
While it is cheaper in some areas than the other cities discussed, the tax factor alone will make you think twice before starting a new business or relocating to Philadelphia.
- Income tax for top bracket of earners – 3.07%
- Combined sales tax rate (City, County, and State) – 11.87%
- Corporate Income Tax- 9.99%
These rates are especially staggering when you consider that states like Texas do not even have a corporate income tax. Philadelphia’s corporate income tax beats out New York and San Francisco for the highest rate.
Cost of Living
Philadelphia’s cost of living is 101, right around the national average. However, the conditions associated with this figure are closely aligned with Chicago’s.
High crime rates threaten both Philadelphia businesses and citizens. It consistently scores above the national average for crime, including violent offenses like homicide.
Overall, the quality of life associated with the cost of living leaves much to be desired.
Office Rent
The cost of office space in Philadelphia is affordable, at about $33 / square foot. The rent rates are not necessarily what lands Philadelphia on this list.
However, if you are looking to move to a business-friendly city, you still could stand to save in rent. In addition, you will benefit financially from the lower sales tax rate and overall improved quality of life. Let’s look at the numbers for rent alone.
Should I Move From a Business- Unfriendly City?
The work from home revolution has shown businesses that they do not necessarily need the physical spaces they thought they did. As a result, you have more freedom when making CRE decisions to be flexible with your corporate locations.
It is your choice to decide whether these expensive spots are worth their price tag. When you consider how these charges add up, your business may be suffering more than you know from the expensive rates of the mentioned cities.
If you want help deciding where the best place for your company is, you can work with a tenant rep. As real estate professionals, their career is built on identifying the smartest moves for companies to make with their CRE portfolios.
Even if relocating is not for you, a tenant rep can help you do everything from renegotiating your existing lease to cutting down on space you no longer need.
So now that we’ve discussed the most business-unfriendly cities, you’re probably wondering about the inverse.
Click here to learn where the most business-friendly cities are!
Wondering where to begin?
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