Businesses and consumers are feeling the pain of high inflation rates not seen in decades. For commercial real estate occupiers, rising costs have a range of implications.
In this report, we investigate how high costs are impacting occupiers across several categories within the following:
- Labor costs
- Input prices and operational costs
- Real estate costs
U.S. Labor as a Share of Total Operating Expenses
We also outline key considerations that tenants should focus on as they evaluate their leasing strategies.
- A large imbalance between labor supply and demand has led to shortages across sectors, and wage growth is responding. Harder hit sectors like accommodations, food services, retail and wholesale trade—where labor is about half of all operating expenses—are all recording the fastest wage growth rates in the economy.
- Input and operational costs range from materials to costs of energy, transportation, storage and supporting services. Inflation in the supply chain is much more acute than that for services or consumer prices, reflecting special dynamics of the pandemic recovery. Goods prices are rising at more than three times the rate of services prices as a result.
- Real estate costs are largely driven by market conditions—that is, rent growth is a function of local fundamentals and vacancy conditions and less so of national or even local inflation. This creates both opportunities and challenges for occupiers, depending upon the property types they lease.
- However, real estate costs associated with buildouts have risen significantly and labor shortages are compounding challenges for occupiers. Planning further in advance is more important than ever.
