Between the fourth quarter of 2020 and the first quarter of 2022, euro zone CPI inflation increased from –0.28 percent to 6.16 percent — reaching levels last seen in the mid-1980s. While current forecasts suggest a gradual reduction to under 1 percent over the four quarters to the second quarter of 2023, the risks of a prolonged period of inflation above central bank targets is currently front-of-mind for investors.

High inflation has been largely absent from most developed real estate investment markets for the last 30 years; nevertheless, experience and data from periods of high inflation in the 1970s and 1980s offer valuable and timely insights. Further, while theories on the drivers of real estate returns are imperfect, they offer valuable information. By combining data and theory with views on the wider real estate and economic context, we can develop views on the conditions required for real estate to offer an inflation hedge.

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