Research Briefing | Sep 20, 2022

Embedded inflation could significantly erode property values

Embedded inflation could significantly erode property valuesDownside risks to our near-term outlook for global real estate are mounting, as the global economic outlook has continued to deteriorate over the past three months. Under our baseline scenario, global all-property total returns are expected to average 5.2% pa over 2022-2024, 2.2ppts below our June forecast. However, if inflation were to become embedded, as is the case in our high inflation regime scenario, this would knock returns to 2.1% pa. 

What you will learn:

  • The greatest risk to near- and long-term property returns is a scenario where inflation remain elevated and central banks lose their credibility in controlling it. Under our high inflation regime scenario, global all-property returns fall nearly 8.5ppts by 2024.

  • The risk of an advanced economy recession scenario has risen sharply in recent months, spurred on by faster-than-expected monetary tightening by central banks. Globally, all-property returns would be 4ppts below our baseline by year-end 2024, However, this would trim advanced economy returns the most.

  • Under our increasingly likely gas rationing scenario, European returns are dented more severely than other regions. Global all-property returns are down 3.7ppts from the baseline by year-end 2024.
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