Experts analyse inflation, interest rates and real estate’s inflation-hedging properties

Chicago, Toronto and London – Avison Young released its Inflation and Real Estate insight report, a look at inflation, interest rates and the potential for real estate to serve as an effective hedge against rising prices as the world continues to recover from COVID-19. The global economy has experienced a robust rebound, accompanied by a sharp increase in prices and wages, sparking fears of a new period characterised by higher inflation and interest rates. This has propelled real estate into the spotlight as it is often argued that “property is a good hedge against inflation.” The new report, featuring insights from the firm’s economic and real estate experts, provides a deep-dive analysis.

“Inflation continues to be an incredibly hot topic and investors are keen to find ways of preserving their returns in real terms,” shared Dr Nick Axford, Avison Young’s Global Director of Insight. “Theoretically, real estate should offer protection from inflation, but in practice, the picture is more complicated.” 

Key themes in the report include:

• The reasons why inflation has been low in recent decades, and how some of these structural drivers may be changing
• The factors behind the recent surge in prices, and why we believe that that inflation will peak around the middle of this year before declining – but staying above average into 2023
• How inflation impacts real estate rents, capital values and total returns in markets across the globe
• Why real estate investments do offer reliable protection against inflation – but only over the long term
• How different types of assets perform during periods of inflation, and where investors should be looking today if they are concerned about the outlook

“There’s a lot to be on the lookout for,” added Axford. “The current economic cycle is starting from a point of low unemployment and skills shortages in many sectors, and an acceleration in wage increases is already evident in many countries. There are lots of ways a real estate investment can help portfolio performance over the next couple of years, even if we do see more inflation coming through - you just have to know where to look.”

To dive into the report, click here.