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Inflation Impacting CRE Inflation Impacting CRE

Insights

How Inflation is Impacting CRE Occupiers

For commercial real estate occupiers—the businesses and organizations that lease and own the real estate they occupy—rising costs have a range of implications.

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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. 
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Inflation CRE Implications

For further reading, in three companion pieces below, we look at specific inflation implications by property type for businesses that occupy office, retail and industrial-logistics real estate.
industrial
Research • Inflation

Inflation's Impact on Industrial Occupiers

 
Rebecca Rockey • 6/8/2022
Office Workplace
Research • Inflation

Inflation's Impact on Office Occupiers

 
Rebecca Rockey • 6/8/2022
Retail
Research • Inflation

Inflation’s Impact on Retail Occupiers

 
Rebecca Rockey • 6/8/2022

Related Service & Industries

Total Workplace Consulting
Total Workplace consulting brings together thought leadership, strategy, and guidance to help both occupiers and investors to address how work is changing, where people live, work and play, and what the implications are for real estate.
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Logistics & Industrial
In the fast-evolving sector, occupiers and owners benefit from our versatile representation expertise throughout the supply channel.
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Retail
Our retail specialists create customized, dynamic solutions for investors, owners, developers and occupiers within the quickly evolving retail sector.
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