Why inflation is not a threat to REITs
Inflation has dominated interest rate discussions recently. Despite concerns that COVID lockdown, restricted shipping capacity and supply chain disruptions could continue to create inflationary pressure, REIT investors may not necessarily need to worry too much, said Victor Yeung, Chief Investment Officer, Admiral Investments.
“Generally, a higher inflation rate is positive for real estate as long as economic growth is not derailed. This is because real estate rental growth is often correlated with the general inflation levels.
“This is why interest rate increase often coincides with real estate upcycle – the central banks are increasing interest rates because the economy is growing, and the growing economy and inflation is positive for real estate,” he wrote.
In fact, logistics REITs might even benefit from the situation.
“A sustained disruption to the global supply chain will likely prompt stakeholders to diversify their supply chains. Adding redundancy, either simply in another Asian country or somewhere closer to home,” Yeung argued.
That will create demand for additional logistics capability. Logistics REITs, especially those that take on development activities, are therefore likely to keep thriving.
Last year, amongst the six major REIT markets around the world, the United States (US), Japan, Australia, the UK and Hong Kong, all saw REITs outperforming the respective general equities index, with Singapore as the only exception.
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