Commercial Real Estate Feels Strain of Inflation

With the inflation rate at its highest in four decades, real estate investors are concerned about the strength of the market’s ability to combat against higher prices. Commercial properties have long been viewed as inflation protection because owners of many property types can raise rents to stay ahead of price increases. However, increasing labor costs and supply-chain shortages are limiting liquidity in the space. The rise in interest rates is expected to intensify as the Federal Reserve winds down its bond-buying program of mortgage-backed securities and begins a new cycle of short-term rate increases. Therefore, some investors are beginning to shift money out of real estate as they focus less on its value as an inflation hedge and more on the potential damage to the property sector if continuous price increases drive up long-term interest rates.

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