To read this full article you need to be subscribed to Institutional Real Estate Asia Pacific
Hedging your bets: Real estate investing strategies to employ to maximise inflation hedging
Broadly speaking, people view real estate as an inflation hedge. It’s based on the principle that income from rent collected from commercial properties tends to track with consumer prices.
But it is important to go deeper and look at the data. An October 2021 study from CBRE Investment Management showed rents in the United Kingdom over a 40-year period from 1981 through 2020 increased in line with inflation. But there were important variances in the details. Of the 14 subsectors evaluated, half had annual growth rates above the average rate of inflation, while the other half trended below.
While the adage holds that real estate can hedge against inflation, counterpoints to that argument exist. Take, for example, what’s illustrated in CBRE IM’s study of the United Kingdom. While office space in the West End and Midtown of London increased by more than 4 percent — well above CPI — office space in the Southeast was at just 2 percent, significantly below CPI.