New York City, DC, San Francisco among most expensive U.S. metros for doing business

by Brianna Crandall — September 1, 2014—Honolulu; Fairfield County, CT; New York City; Washington, DC; and San Francisco are the most expensive areas in the country in which to do business, according to the IHS Global Insight Business Cost Index from IHS Inc., a global source of critical information and insight. Beaumont-Port Arthur, TX, is the least expensive metro area for business costs, followed by Lake Charles and Monroe, LA.

The Business Cost Index (BCI), recently unveiled by IHS, shows that more expensive metros are generally clustered around the East and West Coasts. These metropolitan areas tend to have higher than average wages, as well as high real estate and energy prices. High population density and land constraints also contribute to the costs of doing business in these metros.

The top 10 most expensive metros for conducting business, along with their business cost indexes (100 = U.S. average), are:

  1. Honolulu (HI): 145.9
  2. Bridgeport-Stamford-Norwalk (CT): 125.7
  3. New York-Northern NJ-Long Island (NY-NJ-PA): 123.4
  4. Washington-Arlington-Alexandria (DC-VA-MD-MV): 122.4
  5. San Francisco-Oakland-Fremont (CA): 121.8
  6. San Jose-Sunnyvale-Santa Clara (CA): 121.6
  7. San Diego-Carlsbad-San Marcos (CA): 120.0
  8. Los Angeles-Long Beach-Santa Ana (CA): 118.7
  9. Oxnard-Thousand Oaks-Ventura (CA): 115.5
  10. Boston-Cambridge-Quincy (MA-NH): 114.7

The less-expensive metros tend to be located in the Midwest and South, where lower-than-average wages and cheaper real estate help decrease business costs for firms.

The 10 least expensive metros for conducting business are:

  1. Sioux City (IA, NE, SD): 89.0
  2. Memphis (TN): 88.9
  3. Canton-Massillon (OH): 88.9
  4. Akron (OH): 88.8
  5. Knoxville (TN): 88.2
  6. Chattanooga (TN): 87.6
  7. El Paso (TX): 87.3
  8. Monroe (LA): 87.0
  9. Lake Charles (LA): 86.8
  10. Beaumont-Port Arthur (TX): 85.9

The BCI calculates businesses’ major costs, which vary across the country: labor (including wages, unemployment insurance, and health insurance), energy, and real estate. For each metro, the index measures the total costs faced by a “typical” firm in each of the categories. This is then divided by the national average to compute the index. Finally, a separate tax index incorporating state and local tax rates is added to the other cost components to compute the overall BCI.

A score above 100 indicates the metro is more expensive for business than the nation overall, while a score below 100 means the metro is less expensive, explains IHS. For example, a score of 115 means the metro’s cost of doing business is 15 percent higher than the national average.

To learn more, go to IHS U.S. Regional Service.