Yucaipa, an inexpensive city to do business

Business activity in the Inland Empire has continued to rise, and despite the turbulence in today’s macroeconomy, is forecast to continue its upward climb in the near-term future.

Across the region, business activity increased at a 2.8% annualized rate during the third quarter of 2022 (the latest data available) and is forecast to grow between 2% and 3% over the next 12 months. The current increase represents a solid jump over growth in the second quarter (1.6%) but a significant decline from previous quarters (4.7% in the first quarter and 6.4% in the fourth quarter of 2021).

According to the authors of the analysis, the longer term decline in the IE’s growth rate is to be expected as the region’s economy has transitioned firmly back to pre-pandemic conditions.

“Since the pandemic’s lows, the Inland Empire has experienced a very steady economic recovery, outpacing coastal California along many key measures,” said Taner Osman, research manager at the UCR Center for Economic Forecasting and one of the Index authors. “While we are now seeing some weakness in the residential real estate market, that has been largely offset by impressive growth in employment, the labor force, consumer spending, building permits, and commercial real estate.”

Local commercial real estate construction is indeed experiencing a boom with virtually every non-residential building permit category growing in value in 2022. Surprisingly, given the pandemic-driven shift towards remote work, the category enjoying the largest growth is office property. Building permits for new office space in the Inland Empire surged nearly 380%, pushing the total year-to-date value for new commercial real estate in the region 205.7% above 2021 levels. Moreover, many existing firms have opted to improve or expand their space as illustrated by a 46% annual jump in non-residential alterations and additions.

Inland Empire

non-residential construction

Office 379.6%

New commercial 205.7%

Other commercial 262.3%

Nonresidential 74.1%

Industrial 2.8%

Business leaving California

A new survey finds doing business in Southern Califor-nia remains costly.

While the Inland Empire continues to outpace economic growth in other parts of the states, a new survey finds that many businesses are moving to lower-cost states.

According to an annual survey by Claremont McKenna College’s Rose Institute and Kosmont Companies

The 2022 Kosmont-Rose Institute Cost of Doing Business Survey, which has been conducted by Claremont McKenna College since 2003, finds that 64% of businesses that have moved out of in the past 30 years have relocated to the lower-cost states of Nevada, Arizona, Texas and Oregon.

The survey found that 158 cities — primarily in Southern California —rank as the costliest cities for doing business.

“Doing business in Southern California has many benefits, but the costs make it increasingly hard to pull off,” said Ken Miller, director of the Rose Institute of State and Local Government and an author of the survey report. “Rising home values, office rents, labor costs, and burdensome new state and local laws were variables to watch this year as these costs continue to escalate.”

Las Vegas has been the top destination for California businesses relocating out of the state. Between 1990 and 2019, 2,832 California businesses relocated to the desert city, followed by New York City with 1,455 businesses relocating there. An estimate 1,088 businesses have moved to Reno, Nevada, 883 to Phoenix, 868 to Portland, Oregon 816 to Austin, Texas.

The survey found that within Southern California, the cost of doing business tends to be more expensive in Los Angeles County than in Orange, San Bernardino, or Riverside counties. This difference can be attributed in part to market forces, such as office rents, as well as local policies, such as sales taxes. Los Angeles city voters’ recent approval of Measure ULA, which adds a large new transfer tax on the sale of properties over $5 million to fund homelessness programs, illustrates how businesses — especially those buying or selling property in the county’s largest city — will bear extra costs.

At the state level, California continues to impose higher costs on businesses than neighboring states. For example, California’s statewide minimum wage will increase to $15.50 per hour on January 1, 2023, more than double the hourly minimum wage in Texas, Idaho, and Utah.

Some small California cities found a spot on the list of least expensive cities for doing business, including Inland Empire cities such as Yucaipa, Yucca Valley and Hesperia. However, cities in Arizona, Idaho, New Mexico, Nevada, Oregon and Texas comprised most of the list of least costly cities.

Three large Texas cities and commercial hubs–Fort Worth, Irving, and San Antonio–are all in the ten least expensive cities in the Survey.

“California remains an attractive place to do business despite the out migration of businesses to other western states,” said Larry Kosmont, Chairman and CEO of Kosmont Companies. “Businesses that want to stay in California should ask themselves if they have a strategic or operational reason for being in California; otherwise, the state’s higher prices pose a real challenge to running a profitable enterprise.”

The Kosmont-Rose Institute Cost of Doing Business Survey ranking is based on seven variables including, sales tax, utility tax, business license fee, average office rent, FBI crime index, median home value and minimum wage. The Rose Institute and Kosmont Companies last published a survey using 2018 data in 2019.