Transportation and Fuel Costs Are Major Drivers
By Jared Kadry CoStar Analytics
November 15, 2021 | 2:26 P.M.
Inflation numbers have grabbed headlines in recent months as strong demand and supply chain issues persist across the nation. Images of anchored ships off Long Beach, California, are a testament to bottlenecks in the global supply chain, but also the Southern California economy, which has seen record jumps in inflation.
October figures released by the Bureau of Labor Statistics show a 6.2% year-over-year increase in Consumer Price Index numbers for all urban consumers nationally, the highest jump since 1990. That’s five times higher than the rate of 1.2% at the same time last year.
Looking at the local Southern California economy shows similar, and even starker, trends. For Los Angeles and Orange counties combined, CPI grew by 5.4% in October, up from 0.7% a year ago. This represents a sevenfold increase in 12 months.
A dive into specific goods gives insight as to what’s driving price jumps and how it affects the commercial real estate sector. In Los Angeles-Orange County, transportation costs were up 17.4% on a year-over-year basis, with motor fuel and used cars driving the surge.
Increased mobility from commuters and elevated activity by logistics companies delivering goods have contributed to these jumps in prices. Bottlenecks in the supply chain, along with increased transportation costs, have driven businesses to look for warehouses closer to the ports. The result has been robust demand for logistics space, which is around 2% in both the Los Angeles and Orange County markets.
Fuels and utilities were up 14.9% in Los Angeles and Orange counties, largely driven by utility gas services and household energy.
Work-from-home policies have kept many office-using employees at home, which drives up demand, and thus pricing for utilities. As a testament to this phenomenon, office vacancy rates are at near-record highs of over 13% in the Los Angeles office market, and an eight-year high in the Orange County office market.