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Chart of the week

CRE rent growth has mostly outpaced inflation

Amid unrelenting inflation, this week’s chart looks at effective annual rent growth outpacing inflation across certain CRE sectors.

September 16, 2022 | 2 minute read

Effective annual rent growth and inflation

Source: REIS, Inc., U.S. Bureau of Labor Statistics, as of June 30, 2022. Latest data available as rent growth is published quarterly.

  • Markets suffered their worst day in more than two years on Tuesday, as investors digested another disappointing inflation report and recalibrated their rate expectations. The selloff was broad as all 11 sectors in the S&P 500 declined while core fixed income fell -1.51% on the day.1
  • Tuesday’s decline may have reinforced a sense among investors that there is nowhere to hide, as the 60/40 portfolio has staged a highly correlated decline virtually all year against a backdrop of rising inflation, higher yields and tighter financial conditions.
  • Heightened volatility has also shined a spotlight this year on real assets (commodities, infrastructure and real estate, etc.…) and other investments that have historically outperformed amid inflationary environments.
  • The chart highlights real estate’s effectiveness as a potential inflation hedge through the current cycle. Amid extraordinary demand and resilient fundamentals, annual effective rent growth across multifamily and industrial commercial real estate properties is currently outpacing core CPI, by 11.7% and 3.6%, respectively.2 (Rent growth across retail and office has trailed CPI as both property types have faced greater macro headwinds.)
  • This week’s CPI release appeared to remind markets that the fight against inflation could be a longer one than many expected just a few weeks ago. Within this environment, investors may be wise emphasizing investments that have historically provided real returns amid higher inflation. 

  • Core fixed income represented by the Bloomberg U.S. Aggregate Bond Index.

  • REIS, Inc., U.S. Bureau of Labor Statistics, for the period from January 1, 2017, through June 30, 2022. Latest data available as rent growth is published quarterly.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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