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.

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