By Mike DeGiorgio
Rising inflation and interest rates are driving investor capital into commercial real estate across the U.S. As we face a critical turning point for the economy, commercial real estate continues to serve as a safe hedge against inflation. Looking ahead, asset classes like industrial, retail, office, and multifamily are set to yield the highest potential returns for investors.
Historically, real estate has often served as a buffer against inflation because it provides reliable long-term returns compared to stocks and other more volatile investment options. Right now, despite rising interest rates and a downturn in the stock market, our data shows prices per square foot are rising across asset classes. Even as cap rates decline and economic uncertainty negatively impacts investments in other sectors, rising rents mean commercial real estate is well positioned for continued growth throughout 2022.
Inflation uncertainty highlights real estate’s recession-resistant, longer-term positive returns, as supply chain shortages delay construction, limiting supply, increasing operating income and driving up property values. Whether buying, selling, or owning, commercial real estate’s profitability further demonstrates the sector’s resistance to inflation.
For leaders looking to invest in U.S. commercial real estate in the months ahead, here are the biggest asset class winners.
Overall, the outlook for the commercial real estate market in the U.S. remains strong. As inflation drivers including the price of construction materials along with wages continue to rise, the Fed is poised to continue aggressively raising rates. That means that the time to invest in inflation-resistant property is now.
About the Author:
Mike DeGiorgio is the CEO and founder of Crexi, the commercial real estate industry’s fastest-growing data and technology platform.
Commercial real estate refers to properties used for business purposes, including office buildings, retail spaces, warehouses, and multifamily housing. These properties are typically leased to tenants for income generation.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI) or Producer Price Index (PPI).
Cap rates, or capitalization rates, are used in real estate to indicate the expected rate of return on an investment property. It is calculated by dividing the property's net operating income by its current market value.
A multifamily property is a residential building that contains multiple separate housing units, such as apartments or condominiums. These properties are often owned by investors who rent out the units.
Asset classes are groups of financial instruments that exhibit similar characteristics and behave similarly in the marketplace. Common asset classes include stocks, bonds, real estate, and cash.
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