Real estate looks solid despite inflation and rate risks
While cause for worry remains relatively low, the chances of a higher inflation regime have increased. In this report, we analyse the key underlying transmission mechanisms of inflation to commercial real estate performance and their current state. Namely, interest rates, real wages and corporate earnings.
What you will learn:
- Despite rising inflation and the threats that interest rate hikes pose to real estate, we have maintained our global all-property total return forecast for 2022 at 7.9% and for 2023 at 7.1%.
- Factors that support our view of real estate’s healthy near-term outlook include: improving occupier fundamentals across key property sectors; strong investor demand that continues to support pricing levels; economic growth well above trend levels; and healthy corporate earnings.
- Nominal returns will remain strong over the near term, though real returns in advanced economies will be squeezed.
UK Construction prices and debt push up CRE costs
UK commercial real estate costs will increase more sharply than inflation this year, resulting in the widest margin since records began in 2013, according to our new CRE Cost Monitor. Our model suggests CRE costs will peak at 11.3% y/y in mid-2022, against a CPI of 8.6%, a margin of more than 2.5ppts. Costs will then fall back to 8.8% by end 2022, 2.2ppts above our inflation forecast.Find Out More
The dynamics behind deteriorating housing affordability in North America
Housing affordability worsened in Q4 2021 at the national level in both the US and Canada, according to our updated Housing Affordability Indices (HAIs), as income gains failed to offset the impact of higher home prices and interest rates.Find Out More