Will increased inflation affect Real Estate Investors?

By Cliff Hockley, President of Bluestone and Hockley Real Estate Services
Executive Director, SVN | Bluestone and Hockley

Inflation is up and is more persistent than expected. The path of inflation depends on the interaction of wages/inflation/expectations. The Fed may have to respond quickly to accelerating inflation (as they have started to do at the November 3, 2021, FOMC meeting).

Residential, multifamily, mobile home parks, industrial properties, and storage facilities are in high demand as well as grocery-anchored retail centers, and the prices of these assets are increasing significantly.

Lagging are downtown office buildings and non-grocery anchored retail centers, especially in cities where retail was overbuilt. In some areas of the country, the overbuilding of retail centers has left significant vacancies where traffic is difficult, and the properties are old and out of date.

More importantly, in the hospitality market, which includes hotels and restaurants owners are struggling to hire staff, which means they can only offer limited service reducing their ability to compete for the increasing tourism marketplace as the threat of COVID lifts.

There is risk in the marketplace, and even with low-interest rates, investors need to understand that interest rates for real estate may increase by 300 basis points in the next five years. This information needs to be taken into consideration as investors shape their decisions regarding investing in the current market. Real estate investors also need to consider their investment decisions ahead for seven to 10 years as they plan their exit and from this set of purchases. Every investment in all parts of the United States will take a different set of decisions. Take the time to plan your investment purchases with a view of the future in mind. Inflation considerations should color your decisions.

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