NYC tops list of most expensive places to do business.

In the midst of the longest national economic boom in memory, the cost of doing business in New York City is topping other U.S. markets by an average of 17 percent, according to a study just released by Colliers ABR, Inc., a Manhattan-based real estate firm.

Yet the high expenses are worth it for most companies, the report concludes, given the city's superior labor pool, large customer base, diverse industries, efficient transportation systems and international status.

"The competition for workers and office space in markets like New York and San Francisco drives up the cost of doing business in these cities," said Barbara Byrne, the firm's Economist and Director of Research, who wrote the report. "But businesses that perceive a need for a presence in these markets are willing to pay the price, primarily in the form of a premium on wages and real estate costs."

Based upon an exclusively developed model, the report - the first of its kind using all major cost components reported on a city and suburban market basis - found that comparable operating business costs per square-foot in New York stood at $316.12. Costs in the 12 other markets surveyed were lower, the report found, by as little as five percent (in San Francisco) and as much as 30 percent (in suburban New York).

Another reason for companies' willingness to pay top dollar in New York, the study pointed out, could be productivity: employees in the Big Apple have been cited as 54 percent more productive than the national average.

"When an employer sees productivity differences in the form of higher revenues, the cost to keep employees at a higher-producing location often becomes secondary," asserts Colliers ABR Partner Mark P. Boisi.

The growing global nature of business may be yet another factor weighing in the Big Apple's favor. "New York is the nation's only true international center," notes Colliers ABR Executive Vice President Peter Riguardi. "The city may appear expensive on a domestic basis, but compared to London, Tokyo and Hong Kong, New York is quite competitive."

The study's Cost of Doing Business model is based on the cost of operating a hypothetical consulting, accounting or engineering firm employing 100 people in a 25,000 square-foot office setting in 13 selected markets. Stamford, CT ranked third in costliness compared with New York City (11 percent lower), followed by suburban Chicago (14 percent lower), Northern New Jersey (16 percent), Dallas (18 percent), downtown Philadelphia (19 percent), Atlanta (20 percent), Los Angeles (20 percent), suburban Philadelphia (21 percent), downtown Chicago (22 percent) and Denver (29 percent).

The study found that while real estate costs vary more than labor costs across the U.S., rent typically isn't a major expense. Even with New York and San Francisco included, real estate averaged just nine percent of total costs for the 13 markets. Labor was by far the biggest expense for the hypothetical companies, averaging close to 91 percent.

Non-income taxes were another variable. In some locales, like suburban New York, suburban Chicago, Northern New Jersey, Dallas, Stamford and suburban Philadelphia, they simply didn't exist; in others they represented a somewhat significant expense, reaching as high as 2.3 percent of operating costs, for example, in Philadelphia.

In general, the study found that the reasons behind cost differentials are hard to pinpoint. While higher costs are somewhat correlated to size and age of the city (explaining why costs in the East were found on average to be higher than in the West), there are exceptions to the rule. Philadelphia's costs were lower than Stamford's but higher than suburban New York's, and Dallas' costs were higher than Atlanta's. Likewise, central business districts generally had higher costs than suburban areas, with the notable exception of Chicago and its outlying areas.

In the end, Byrne said, the report's value will be to serve as a baseline study so that comparable operating expenses in these markets can be tracked from year to year, producing quantifiable information and identifying trends and direction related to cost differentials.

"While this study confirms the anecdotal evidence about the high cost of doing business in New York City and San Francisco, it also underscores the complex interplay of factors that affects operating costs outside those markets," said Byrne. "Conventional wisdom about the relative expense of less costly markets often gets upended when you look at the facts."