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Aside from being some of the most costly U.S. cities to live in, Honolulu, San Jose and San Francisco are also costly places to do business.

In its most recent report, IHS Markit ranked the top U.S. metropolitan statistical areas, or MSAs, using its “Business Cost Index.” The Urban Honolulu MSA in Hawaii came in first as the most costly to do business in, followed by the San Jose/Sunnyvale/Santa Clara MSA in California. In third was the San Francisco/Oakland/Hayward MSA in California while the Bridgeport/Stamford/Norwalk MSA in Connecticut was fourth. The New York metro area, which includes Newark and Jersey City in New Jersey, was number five.

All of these MSAs exceeded the national average by more than 25 percent, researchers at IHS Markit noted. The firm also examined the least-costly areas to do business. These cities included Morristown, Tenn., Beckley, West Va., and Valdosta, Ga. — which were all 15 percent lower than the national average.

“The Business Cost Index, or BCI, shows that more expensive metros are generally clustered around the East and West Coasts; these metropolitan areas tend to have higher than average wages, high energy costs and high real estate costs due to high population density and land constraints,” authors of the report said. “The less-expensive metros tend to be in the Midwest and South, where lower than average wages and greater availability of land help decrease business costs for firms.”

Karl Kuykendall, principal economist of U.S. regional economics at IHS Markit, said business costs “are not the only determinant of business location decisions, labor quality and availability, conglomeration of firms/industries, proximity to markets, state/local incentives and lifestyle factors all play a role.”

Kuykendall explained that the lowest-cost MSAs are also not the fastest growing, “and vice versa.”

“Nevertheless, business costs are an important consideration for firms, and thus we would expect hiring in costly areas to be mostly at the end of the market where superior worker productivity can offset the high costs,” Kuykendall said. “Among the 50 largest metros many of the fastest growing have costs near or below the U.S. average, showing the advantage of being a large market without a premium price tag. [But] there are high cost metros, especially in California, where growth has been very strong despite its costs.”

The Top 10 Most Expensive Metro Areas for Conducting Business

Rank     Metro/BCI (100 = U.S. Avg.)

  1. Urban Honolulu, Hawaii   135.7
  2. San Jose-Sunnyvale-Santa Clara, Calif./130.9
  3. San Francisco-Oakland-Hayward, Calif./129.4
  4. Bridgeport-Stamford-Norwalk, Conn./125.2
  5. New York-Newark-Jersey City, N.Y.-N.J.-Pa./125.2
  6. Santa Cruz-Watsonville, Calif./124.5
  7. Washington-Arlington-Alexandria, D.C.-Va.-M.-W.Va./122.4
  8. Napa, Calif./120.9
  9. San Diego-Carlsbad, Calif./120.7
  10. Los Angeles-Long Beach-Anaheim, Calif./120.4
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