Inflation May Be More Supportive of Tight Cap Rates

The commercial real estate sector is “moderately well-positioned” to face prolonged inflation, according to one industry watcher, thanks to what he calls its “demonstrated ability to protect (and expand) profit margins in inflationary periods.”

“As an asset class, CRE has demonstrated its ability to protect margins in inflationary environments – and the capital markets have rewarded it handsomely with higher multiples,” says Omar Eltorai, director research at Altus Group. “While the prospects of persistent inflation may appear to benefit the asset class, continued above-trend inflation would come with continued aggressive tightening and increased risk of economic slowdown. All together – high inflation, rising rates, slowing economy – these factors would most likely pose more headwinds to property-level performance than tailwinds.”