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.
Embedded inflation could significantly erode property values
Downside 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.Find Out More
Asia: Land values set for largest decline in over a decade
Land values across Asia Pacific are coming under increasing pressure as developers look to preserve margins.Find Out More