Amid global inflation spikes, institutional investors have been flocking to commercial real estate en masse—but one expert urges a slow hand, noting that "real estate can outperform inflation, but not always."
Real Capital Analytics' Jim Costello notes in a new analysis that in the G20 countries alone, inflation hit 4.6% through September, outpacing its pre-pandemic rate. But "inflation can distort investment decisions," he says.
"Rather than focusing on the fundamentals of a project, inflation can lead investors to underwrite above-average income growth," Costello says. "It might work for a while, but over the longer term, the accompanying increase in interest rates can reduce financing options and push up cap rates thus hurting valuations."
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