Where Are the Best Cities to Do Business?


Our comprehensive annual guide to which places are thriving -- even in an economy many consider in recession.

By Joel Kotkin and Michael Shires

What a difference a year and a deflated housing bubble makes. Inc.com's 2008 list of the Best Cities for Doing Business, created in conjunction with Newgeography.com, uncovered some of the most dramatic changes since we started this ranking back in 2004. Five major trends were immediately revealed; trends that are shaping the business environment right now across the country and will continue to over the next several years.

The list focuses on short- and long-term job growth. It tells us precisely not just where jobs are being created -- a sure sign of economic vitality -- but where the momentum is shifting. For entrepreneurs, this suggests what may be the best places to locate or expand your business.

The Bubble and the Fall of the Sunshine Boys

Since the list's inception, Florida has been the standout state in each of our size-based categories -- small, midsize, and large. But not this year. Now, Florida is the state that fell back to earth. Stung by plummeting construction employment and the mortgage finance crisis, many of our former highfliers across the state are hurting. Ft. Lauderdale, last year's No. 3 among the large metros, dropped 24 places. West Palm Beach, No. 6 last year, dropped to No. 41. And Jacksonville, No. 12 in the large category, fell seven places.

The fall, however, was much more devastating for the smaller communities, such as Ft. Myers-Cape Coral. The area ranked No. 1 last year in the midsize category but plummeted 42 places this year. Lakeland-Winter Haven, down 45 places, Deltona-Daytona Beach, down 49, Palm Bay-Melbourne, down 53, and Bradentown, down 65, fared even worse. In even smaller towns, the scenario was bleaker. Ft. Walton Beach dropped 85 places and Naples-San Marco Island, No. 4 last year, plummeted 105 places, the most of any metro in our survey.

"We're the foreclosure capital of America," admits Bill Valenti, founder and CEO of Florida Gulf Bank, founded in 2001 in Fort Myers on the once booming west coast of the Sunshine State. Many of the people that moved into the area bought relatively expensive homes expecting continued asset appreciation to make up for the fact that many jobs in the area pay modest or low wages. Now the area has seen median house prices drop from $320,000 to $223,000 in two years. "Something had to give and it did."

Although Florida's fall was by far the biggest, the housing collapse has also humbled high fliers in other states as well. Last year's No. 1 among the large metros, Las Vegas, dropped seven places while No. 2, Phoenix, dropped 12; the other big Arizona city, Tucson, No. 12 last year among the midsize category, fell 34 places. Midsize Reno, No. 8 last year and previously No. 1, dropped 21 places.

Outside Florida, the sharpest pain was felt in California. Property-driven economies in Oakland, Santa Ana-Anaheim, Sacramento, and Riverside-San Bernardino all dropped by around 20 places or more. The big enchilada, Los Angeles, fell another eight places from its already mediocre 48th ranking last year. Almost every city below LA on the list is either a Rustbelt disaster or a perennially underperforming Northeastern big city.

If this trend continues to play out, California's problems could be worse than those in Florida. When the bubble corrects, Florida still can boast relatively low costs, no income taxes, and a favorable business climate in addition to warm weather. By contrast, California's land use laws, high taxes, and massive $20 billion state deficit don't bode well for the future of the state, suggests Bill Watkins, executive director of the University of California at Santa Barbara's Economic Forecast Project. "There's a lot of uncertainty," he says. "If you are expanding or starting a business, there's not a lot of reason now to come to California."

The Texas Ascendancy Continues

While California is struggling, says Los Angeles-based architect David Hidalgo, Texas is thriving. Hidalgo just completed a large Latino-themed shopping center in Ft. Worth and sees more of his business coming from the Lone Star State. "That's where the opportunities are," he says. "Its costs, regulation, and infrastructure drive you to Texas."

Our rankings certainly bear out Hidalgo's assertion. In many ways Texas has become the new Florida, dominating the top of the list. Among the largest metro areas, a remarkable five of the top 12 best places to do business are from the Lone Star State, ranging from Austin (No. 2) and Houston (No. 4) to Ft. Worth (No. 9) and Dallas (No. 12). Among the small cities, Midland, now ranks No. 1, up 10 places from last year. Odessa and Longview, both big gainers, round out the Texas stronghold on the top portion of the list.

Texas' boom reflects solid growth in a variety of industries, from energy and agriculture to manufacturing and trade. "The big difference for Texas is we did not rely on the real estate bubble," suggests Bill Gilmer, a Houston-based economist for the Federal Reserve. "Our gains are based on jobs elsewhere and that has insulated us pretty well."

Here Come the Carolinas

The other big winners this year are concentrated in the Carolinas. Like Texas, these two states are being fed by varied economies. Certainly, technology companies have been a factor here, many of them in Raleigh-Cary, N.C., which ranked No. 1, up six places, on our list of largest metro areas. Finance has played a large part, too, with Charlotte (No. 5), up 18 places, emerging as the big but low-cost, family-friendly alternative to the New York financial center.

Demographics are a big part of the story here. Our analysis from Praxis Strategy Group shows that Raleigh and Charlotte, are among the biggest magnets for young, educated workers, particularly those in their late 20s and early 30s.

"People are coming here for basic reasons and taking their families with them," observes Sociologist John D. Kasarda, director of the Kenan Institute at the University of North Carolina at Chapel Hill. "They are coming for jobs, particularly from the Northeast, and an affordable quality of life."

To some extent, Kasarda adds, Raleigh and Charlotte are well-known success stories, but he points to wider, less documented successes in the region. Driven by gains in tourism, logistics, manufacturing, and technology, more and more midsize Carolina cities are joining the party. These emerging players include Charleston, S.C. (No. 6); Asheville, N.C. (No. 7); Durham, N.C. (No. 11); Greenville, S.C. (No. 18); and Columbia, S.C. (No. 19). These cities made considerable gains over last year and should be seriously considered for new business opportunities.

The Pacific Northwest-Intermountain West Surge Continues

Like last year, the northwestern quarter of the country did very well. Three of the top 11 big metro areas in the region between the foggy West Coast and the high mountains, including Salt Lake City (No. 3), Seattle (No. 10) and Portland, Ore. (No. 11), all gained ground. This ascendancy was even more evident at the midsize level, with the success of cities such as Provo-Orem, Utah (No. 1); Tacoma, Wash. (No. 2); Ogden, Utah (No. 8); Boise, Idaho (No. 12); and Spokane, Wash. (No. 14). Small cities, including St. George, Utah (No. 2), Coeur d'Alene, Idaho (No. 3), Bend, Ore. (No. 7) and Grand Junction, Colo. (No. 9), also saw gains.

In many ways, the gains here parallel those in the Carolinas. Places like Salt Lake City, Seattle, and Portland, according to the Praxis Strategy Group analysis, all continue to gain educated residents from other parts of the country. The lure, in many cases, lies with strong and diverse job growth and low housing prices compared to coastal California and the Northeast.

Seattle continued its strong growth, notes economist Paul Sommers, due largely to the success of two companies -- Microsoft and Boeing. These companies have been expanding, providing high-wage jobs, and attracting skilled talent to the area. Another key advantage in this high energy cost environment: the Northwest's prodigious supplies of cheap and clean hydroelectric power. This helps everyone, from people building airplane parts to dot-com firms sucking copious amounts of electricity to run their servers.

Some of the other areas in this vast region benefit from what might be called "grey power." Older, often more educated and affluent, baby boomers are flocking to the smaller towns and cities in this region, bringing capital and, in some cases, entrepreneurial know-how. Like the Carolinas, the area between the foggy Pacific Coast and the Rockies seems poised for sustained growth.

Revenge of the Superstars?

Perhaps the most surprising shift in the 2008 rankings, and in some ways the most subtle, has been the improvement in a host of very expensive, highly regulated urban regions that Wharton economist Joe Gyourko calls "superstar cities." For many years these cities -- New York, San Francisco, San Jose, Boston -- have clustered at the bottom of our growth-oriented list, all suffering big losses from the 2000-2001 dot-com bust.

This year has seen the revenge of the "superstars." Although not surpassing Texas, the Carolinas or the Northwest, these elite cities have made a strong showing. In just one year, New York (No. 22) propelled itself 21 places while San Francisco (No. 29) and San Jose (No. 33) gained at least 25 places, and Boston (No. 40) went up 19 places.

The main reason for this modest, but significant turnaround, suggests David Shulman, former managing director of Lehman Brothers, is simple: the powerful financial sector expansion of the past few years. These are all cities where big money plays a big role, either financing new dot-com start-ups or simply serving as the places where multimillion-dollar bonuses are spent on a host of high-priced services.

Yet, Shulman notes, these gains may be short lived. The impact of the subprime and mortgage meltdown hit first in places like California and Florida, and is only beginning to affect the major financial centers. Spurred by the credit crisis, Shulman fears new regulations will limit financial innovation and wipe out whole sections of industries like mortgage-backed securities and some derivatives.

"A lot of these gains are going to rewind," suggests Shulman. "New York is losing jobs as we speak. Anyplace with exposure to financial services is going to suffer over the next two years."

Joel Kotkin is a presidential fellow at Chapman University and executive editor of Newgeography.com

Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy

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Florence tour guide

Because of financial crisis

With this drowning economy, there is lot of distressing news around. Many companies, which are at the top of progression before are now slowly going down. This economic recession have resulted to several predicaments in our lives. Because of financial crisis, more and more people are being engaged in wrongdoings just to live through in this crisis, such as robbing. There is no excuse for robbery…unless you rob Congress or AIG. However, the morally justifiable targets for robbery are the ones that never get hit. There’s another incident in California doubtless will have many lenders thinking about enhancing security. Two assailants robbed an Advance America store at gunpoint, and luckily, both of their faces were captured on camera. Arrests haven't been made yet, but police have the suspects faces to go on, which makes a positive identification that much more likely.

Re: Because of financial crisis

Increases in poverty - or rather, the gap between rich and poor, but we'll go with just poverty for now - is the most strongly correlated factor predicting increases in crime. In a recession, more become impoverished and so crime increases.

Another interesting factor is the community policy regarding drug use, and whether or not drug use is heavily regulated or operating in a free market. This is less talked about, but has been entering the conversation more lately as the percentages of violent crime driven solely by the drug trade in comparison to "background" crime have been increasing. But this is another discussion for another time. Recessionary trends and poverty are a way more significant driving factor.

I don't think there is any

I don't think there is any real answer to a best city for business im sure some are better suited for certain types of businesses but you can make it just about anywhere especially with the internet. I hope to open a store on long island in the next few years all my websites have been profitable.

LA in the Rankings

Hi Joel, interesting rankings. What is a weighted average? And, I read over your four data points described in the "How We" did it section. When you say you measure employment growth as well as growth, by this you mean pop. growth?

I see the LA area plunged by -8. Does that mean they dropped from a numerical position 8 above their current lowly spot?

So am I right in saying that the ranking shows LA to be the worst-ranking large metro area West of the Mississippi except Oakland? I mean, we with Newark for chrissakes?

So I guess all those apartment complex permits didn't do the trick. I remember when Antonio ran for office, he was talking about luring a major bioscience center. Now I guess it's "we clean their toilets." - Jill


i don't mean to be rude, but aren't your "rankings" really just proxy measurements for sector-by-sector economic growth? from what i can tell, your "rankings" are really just based on year over year or decade over decade gains in employment numbers by city, which are inevitably tied to local industry conditions. thus, cities dependent on one sector (say, housing) will suffer when housing suffers, and cities dependent on another sector (say, finance) will suffer when finance suffers. nothing in your rankings tells me the average skill level of the worker one finds in each city, nor the quality of cultural amenities, nor the quality of schools, nor the number of streets marred with strip malls, nor the cost of commuting, nor the diversity in retail options. it really just seems like a cheap and simplified version of richard florida, and your sprawl-friendly (i didn't say "suburb-friendly;" suburbs are great, if done in the right way like burbank or evanston) agenda merely a bitter antithesis to florida's pop culture success.

finally, if you want a useful ranking, check out this one:


or if you want a good resource to show you the impact of housing on transportation costs, this one:


Housing and Transport Costs

Re: http://htaindex.cnt.org

The recommended site on housing and transport costs is based upon obsolete data. The housing data is from 2000. The real estate bubble has occurred since that time, at least in some metropolitan areas.

Housing costs have exploded in some areas since that time. Since 2000, the Median Multiple (median house price divided by median household income) has more than doubled in the Los Angeles, Miami and Washington metropolitan areas, while it has increased more than 50 percent in the Portland (Oregon), New York and Boston metropolitan areas. The recent declines in housing prices have not begun to restore the previous relationships. In each of these areas, the Median Multiple was over 5.0 by 2007 --- 2/3’s above the historic maximum standard of 3.0. Each of these areas faces what might be characterized as a “loaded gun” with respect to housing costs. As the inventory of housing turns over, more households will be subjected to these artificially higher costs, which could create even greater economic disruption than is already evident. In these areas, the increase in transportation costs is a pittance compared to the cost increases in the housing sector.

At the same time, in the Atlanta, Houston and Dallas-Fort Worth (and many other) metropolitan areas, the Median Multiple has risen more modestly and remains at or below the historic maximum standard of 3.0. In these areas, the increase in transportation costs has generally exceeded the increase in housing costs.

No one should be misled into believing that the difference between Los Angeles, Portland and New York is demand. The three fastest growing metropolitan areas over 5,000,000 population in the developed world are Atlanta, Houston and Dallas-Fort Worth.

See: Demographia International Housing Affordability Survey (http://www.demographia.com/dhi.pdf)

Re: Demographia Survey

The Demographia survey is no doubt interesting and worth a read, but in terms of really understanding housing affordability and economic growth trends in urban areas, it's generally useless. This is simply because it's less of an objective, statistically-driven and comprehensive analysis as much as it is an attempt to manipulate the numbers in order to re-confirm a preconceived agenda about land use restrictions.

Basically, the "survey" authors seek to prove that land use restrictions create artificial bubbles and are largely to blame for the economic crisis, and manipulate statistics in order to confirm this view. I don't think this is malicious at all, in fact, I'm not sure the authors are even aware they're doing it. It's just their analysis suggests the only, or perhaps only the most major, factor that differs between housing markets is land use restrictions. They ignore or marginalize other effects driving consumer housing prices, such as geography (which I would suggest as the most major factor), area job growth or, perhaps more important, potential job growth, quality-of-life amenities like education and the environment, as well as many other factors, including weather, cultural preferences, effects of immigration, and so on, all of which differ dramatically between housing markets in addition to land use policy.

So, I do agree readers should check out the Demographia survey, but just keep in mind that it's mostly intended to convince you that land use restrictions are uneconomical rather than provide you with a constructive and unbiased analysis. Provided this huge grain of salt, it does offer some insight.