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Real estate and inflation: Understanding shifts in hedging dynamics

INREV’s  ‘Real estate as an inflation hedge in a normalised monetary environment and changing occupier markets’ paper is the second in a real estate and inflation series, building on earlier research into real estate as an inflation hedge in changing economic conditions over different time horizons.

Key highlights include:

  • While real estate has historically provided a partial hedge against inflation, inflation uncertainty and the greater importance of unexpected inflation going forward complicate pricing and weaken its hedging attributes.
  • A recent shift toward normalised monetary policy is expected to increase return dispersion, with income becoming a larger component of total returns, impacting real estate’s inflation hedging effectiveness.
  • On the other hand, ongoing changes to occupier markets mean a much greater role for income and should be positive for real estate’s inflation hedging role.
  • Stock selection will play an elevated role in securing an effective inflation hedge.

Download the short expert paper below.