“Inflation devalues us all."
Is real estate a hedge against inflation? You’d think so given it’s both a real asset and an income generator. Meaning, a real estate asset’s value should rise as a function of replacement cost, which itself rises with inflation, and rents should reset as a function of CPI, among other things. Research generally supports that logic, especially over the long term, but with critical caveats.
Real estate’s effectiveness as an inflation hedge depends on three key factors:
Is the real estate directly owned or is it a traded security like a public REIT?
Are we in a stable or volatile economic environment?
Is the inflation expected or a surprise?
Listed and direct real estate perform differently under inflationary pressure. Listed REITs, in particular, have “mixed outcomes regarding their ability to hedge against inflation,” according to a new paper.1 Prior studies have left this relationship unresolved, although most indicate at least some inflation protection from listed REITs, especially over longer periods.
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