Real estate looks solid despite inflation and rate risks

Despite rising inflation and the threats that interest rate hikes pose to real estate, Oxford Economics has maintained its global all-property total return forecast for 2022 at 7.9 percent and for 2023 at 7.1 percent.

While the expected pace of monetary policy tightening has quickened recently, the rate hikes will be front-loaded, and terminal interest rates remain unchanged. Oxford Economics forecasts medium-term repricing. However, should terminal interest rates or bond yields shift materially higher, this would pose a significant risk to commercial real estate and weaken medium-term returns.

Factors that support real estate’s healthy near-term outlook include improving occupier fundamentals across key property sectors, strong investor demand that continues to support pricing levels, economic growth well above trend levels, and healthy corporate earnings.

Oxford Economics holds that real estate can normally act as a hedge against inflation, but not this kind