Los Angeles, CA vs. San Francisco, CA: Which Is Better for Businesses?
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California is a popular destination for businesses, with both San Francisco and Los Angeles, in particular, serving as hotspots of commercial activity in the Golden State.
While both these cities can support a business, they each have their own unique aspects and differences contributing to their own unique environments. Let’s take a look at those below and compare the two.
Population Comparisons
Los Angeles is the larger of the two cities, with a population of 3,849,297 people as of July 1, 2021. San Francisco has a population of 815,201 as of the same date, making it much smaller than Los Angeles.
Los Angeles is the second-largest city in the United States, trailing New York City, so the sheer size of LA tends to win over some business owners trying to decide on their new location. However, both cities have large enough populations to support new business.
Average Demographics
In Los Angeles, the demographics as of July 1, 2021 were:
- 50.5% of the population is female.
- 20.4% of the population is under the age of 18.
- 48.9% of the population identifies as White alone.
- 8.8% of the population identifies as Black alone.
- 48.1% of the population identifies as Hispanic alone.
In San Francisco, the demographics as of July 1, 2021 were:
- 49% of the population is female.
- 13.4% of the population is under the age of 18.
- 44.9% of the population identifies as White alone.
- 5.1% of the population identifies as Black alone.
- 15.2% of the population identifies as Hispanic alone.
These two cities are fairly similar in many ways, so businesses attempting to appeal to certain demographics are likely to have similar success no matter to which city they choose to relocate.
Average Household Income
The median household income from 2016 to 2020 in Los Angeles was $65,290. The median household income in San Francisco during the same time period was much higher at $119,136.
Recently, Los Angeles’s average household income has grown to nearly $90,000 annually.
Commercial Real Estate Comparisons
The commercial real estate market continues to recover from the pandemic in both cities, but their respective markets allow for some illumination into how greatly they differ, especially regarding rents.
Average Commercial Rents
Average commercial rent for office space in Los Angeles during Q3 2022 was about $3.80 per square foot on a full-service basis. This represented little to no change in the average commercial rent from Q2 2022.
In San Francisco, the average commercial rent for office space was about $70.00 per square foot for Class A buildings and about $55.00 per square foot for Class B buildings.
While San Francisco is the smaller city, its office space is considerably more expensive.
Commercial Vacancy Rates
The vacancy rate for office space in Los Angeles during Q3 2022 was around 13.7%. This was a slight increase from the vacancy rate in Q2 2022.
San Francisco had an office space vacancy rate of 22.1% in Q3. This was broken down into a 17.1% direct vacancy rate and a 5% sublease vacancy rate.
The 22.1% number was an increase over the Q2 vacancy rate in San Francisco of 20.7%.
CRE Market Outlook for 2022
In Los Angeles, vacancy rates are expected to hover around the same high numbers that they are currently at for the rest of 2022. While the market is still recovering, some larger office space deals have been signed recently, indicating that businesses are still interested in having office space in the city.
San Francisco saw an increase in vacancy rates this quarter as their market continues to recover as well.
Commercial Activity Comparisons
Both cities are fairly similar in commercial activity. However, key differences such as average household income could sway the tide for a business owner looking for a new home.
Retail: Shopping & Spending Activity
Los Angeles is a major market for shopping, as both locals and the large number of tourists the city brings in spend a great deal of money shopping. Retail rents in Los Angeles in Q3 2022 were about $2.20 per square foot; in San Francisco, it was about $45 per square foot.
However, the average household income in San Francisco is much higher than that of Los Angeles. Both cities can support retail businesses, but San Francisco might be better suited for supporting higher-end retail boutiques and outlets.
Industrial: Warehouse Storage Activity
Industrial real estate in both Los Angeles and San Francisco continues to stay in very high demand, as a large number of businesses on the west coast rely on warehouses to function.
Many businesses are having trouble finding suitable warehouse spaces as both cities illustrate tight industrial vacancy rates: Greater Los Angeles’s industrial vacancy rate was below 1% in Q3 2022; San Francisco’s industrial vacancy rate was about 2.5% in Q3 2022.
It’s unlikely that the industrial vacancy rates in these areas will loosen any time soon. Rent for these industrial spaces has continued to climb as well and is likely to continue doing so for the foreseeable future: Los Angeles average industrial rents in Q3 2022 were about $13.50 per square foot. In San Francisco, it was about $25 per square foot.
Office: Office Space Activity
Los Angeles and San Francisco both host an abundance of office space. Both cities have a large amount of office space construction going on as well, with 4.3 million square feet under construction in Los Angeles and 1.2 million square feet under construction in San Francisco.
In Los Angeles, the average asking rent per square foot for office space in Q3 2022 was $20; in San Francisco, it was about $46.00 across Class A, B, and C buildings.
Multifamily: Vacancy Rates & Leasing Activity
Both Los Angeles and San Francisco are major markets for multifamily properties, with plenty of families and students residing in both cities. Vacancy rates continue to stay low as multifamily properties stay high in demand.
Q3 2022 saw a 3.4% vacancy rate in the multifamily market in Los Angeles, while San Francisco had a 5.3% vacancy rate. Los Angeles had a slight decrease from the previous quarter, while San Francisco had a slight increase.
The average asking rent for multifamily properties in Los Angeles was $2,136, which was a $7 increase from the previous quarter. San Francisco had an average asking rent of $2,515, a decrease from the previous quarter.
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