Remaining resilient: The market environment for properties has changed in recent months, but a look at the past shows that there is no cause for concern — yet
After being too low in recent years, as many economists believe, the picture for inflation has reversed completely in the past few months. The inflation rate in Germany was estimated to be 7.4 percent in April, the highest level since the 1980s. How does property rental income perform during a period of high inflation such as this?
Contract rents are usually hedged against inflation by means of index-linking clauses. The rent is linked to inflation, such that price increases can be partially, or even fully, compensated. This type of clause is the rule in commercial leases. Data from the last high-inflation period from 2007 to 2008, before the global financial crisis, provides evidence of this effect. Rental income for real estate portfolios rose significantly at that time. And even if the rental income is adjusted to allow for price rises, by looking at rental income in real terms, it mostly showed an increase.
For example, cashflow yields in real terms on offi