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San Francisco, CA vs. San Jose, CA: Which Is Better for Businesses?

Published: 05-23-22 Category: General CRE

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It’s important to choose the right location for your business or commercial real estate purchase, as this will have a significant impact on your company’s profitability, operations, and long-term success.

In planning your business, you may be considering locations like San Francisco or San Jose if you’re targeting tech-savvy audiences.

Both cities have rich histories as cultural hubs that support businesses through various initiatives and services.

So which one should you pick? Here’s a look at each city so you can make the right choice.

Population Comparisons

San Francisco, CA, and San Jose, CA are two of the most populous cities in the Bay Area: 884,108 people live in San Francisco. However, 1,003,120 people live in San Jose.

San Jose has more people, but San Francisco has a higher density of people per square mile. San Francisco is also home to a larger number of technology companies.

Average Demographics

In San Jose, the population demographics in 2022 were:

Median age 36.4 years old.
49.6% of the population is female.
15.7% of the population is between the ages of 25 to 34.
26.5% of the population identifies as White.
2.8% of the population identifies as Black.
34.5% of the population identifies as Asian.
32.3% of the population identifies as Hispanic.

In San Francisco, the population demographics in 2022 were:

Median age 38.3 years old.
49% of the population is female.
23% of the population is between the ages of 25 to 34.
40.8% of the population identifies as White.
5.1% of the population identifies as Black.
33.9% of the population identifies as Asian.
15.3% of the population identifies as Hispanic.

The city of San Francisco has an older and more diverse population than San Jose. Both cities maintain substantial Asian populations relative to other cities in the United States.

Average Household Income

The average household income in San Francisco is $160,396.

The average household income in San Jose is $142,635.

Commercial Real Estate Comparisons

San Francisco’s commercial real estate is more expensive than San Jose’s. This reflects the higher concentration of commercial high-rise properties located in San Francisco.

Average Commercial Rents

The average cost of commercial rent in San Francisco is:

Class A Office Space: $92.88 per square foot.
Class B Office Space: $66.42 per square foot.
Class C Office Space: $48.77 per square foot.

The average cost of commercial rent in San Jose is:

Class A Office Space: $59.85 per square foot.
Class B Office Space: $34.64 per square foot.
Class C Office Space: $28.08 per square foot.

The cost of leasing commercial real estate in San Francisco is much higher than the cost of commercial real estate in San Jose.

However, both cities have some of the highest rent prices in the nation.

Commercial Vacancy Rates

The commercial vacancy rate in San Francisco is 8.07%.

The commercial vacancy rate in San Jose is 14.46%.

CRE Market Outlook for 2022

There are a variety of factors that contribute to the commercial real estate market in San Francisco, including the tech industry and business software companies.

The commercial real estate market has been hurt throughout the Bay Area, due to higher-than-normal vacancy rates and weak rent growth.

Commercial Activity Comparisons

San Francisco and San Jose both have strong technology industries and are popular destinations for startups and established firms alike.

Here are how some of the commercial sectors are performing.

Retail: In-Person Shopping Versus Online Shopping

The retail sector has recently experienced an increase in vacancy rates due to increased competition from online shopping retailers.

Many employees have shifted to full-time work from home and no longer browse downtown shops as often during lunch breaks and after working hours.

San Francisco and San Jose both have viable in-person shopping options. The convenience of online shopping oftentimes wins out as consumers tend to choose services based on the fastest fulfillment and lowest price.

Industrial: Warehouse Storage Activity

There’s a large demand for warehouse space due to increased e-commerce sales from companies like Amazon that use inventory and distribution centers to fill customer orders.

Commercial real estate prices are high in both San Francisco and San Jose, but industrial properties tend to be much higher in San Francisco compared to San Jose.

Because of its development level, industrial space is very limited in downtown San Francisco.

Office: Office Space Activity

Office space in downtown San Francisco has historically been very expensive. With the tech boom, commercial real estate prices have shot up to the point that smaller businesses cannot afford to rent a workspace.

San Jose has more affordable office options in downtown and Silicon Valley areas. These are popular due to easy access to public transportation and dedicated office spaces that appeal to tech companies.

Many startups benefit from being in Silicon Valley because it makes reaching targeted markets easier. It’s also a great place for established businesses to hire tech-savvy employees or to partner with others for new venture opportunities.

Multifamily: Vacancy Rates & Leasing Activity

San Francisco and San Jose have both high occupancy rates for multifamily residential properties, but landlords in San Francisco have to work harder to attract tenants because of more expensive rents.

San Francisco has high vacancy rates because of astronomically high rents that most residents cannot afford. Many moved inland to more affordable areas like San Jose and Oakland.

Deciding Which Location Is Right for Your Business

There are many factors to consider when choosing a commercial property.

When looking to expand or relocate your business, you need to consider the commercial real estate market in San Francisco and San Jose, as well as prevailing economic conditions in the U.S. at the time of your decision.

When choosing a location for your business, consider how important your target demographics are and whether other companies are already in key markets.

Also, consider how you want to finance and maintain the property you purchase.