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Is Rising Inflation a Concern for Real Estate Investors?

Early signs of rising inflation are beginning to show up in the marketplace

Two main factors point to an increase in inflation over the short-term:
- Government spending flooded the market with cash to offset the pandemic
- Production pipelines thinned and supply chains can’t keep up

As a result, demand for goods/services is outpacing supply, driving prices up

Real estate is known as a strong hedge against inflation
- Many lease terms include inflation escalation clauses that automatically lift rents
- Leveraged returns are amplified in a rising inflation environment

Those looking to diversify their exposure to inflation risk, may find CRE as an attractive investment option

Prospects for new stimulus and renewed virus containment efforts strengthen the 2021 economic outlook
Additional stimulus checks and extended/expanded unemployment benefits will support spending activity
Furthermore, if the vaccine rollout continues as expected, trillions in savings could be unleashed
Nearly all types of real estate stand to benefit as spending activity and job growth accelerate
Retail and Hospitality in particular could see a revival as consumers re-engage with the marketplace
Employment growth supports the Apartment and Office sectors and indirectly supports Industrial demand
As a result, the outlook for commercial real estate in 2021 and beyond is looking brighter

By Marcus & Millichap’s Research Services

Economic Outlook Placing Pressure on Interest Rates

The Georgia Senatorial run-off results reduced political uncertainty and raised the chance of additional stimulus
This has strengthened the 2021 economic outlook
As a result, the 10-Year Treasury is back up to 1.1% from 0.5% back in August, but still far from 1.8% a year ago

Rising Rates Already Impacting Commercial Real Estate

Apartment loans have seen rates rise 30-40 basis points over the last few weeks to the upper 2% to mid-3% range
Quality Office & Industrial rates run in the low 3% range; Retail Centers & Self-Storage can fall in mid-to-upper 3%
Hotels financing remains challenging, but available

Upward Momentum Likely to Continue

Advancements in the economic and health care fronts are signals that interest are likely to continue rising
Diminishing uncertainty is also taking more investors off the sidelines, increasing competition in the market
For inventors who plan to buy this year, locking in these favorable rates may prove beneficial in the long-ter