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Public real estate returns and inflation shocks: The central role of inflation nonneutrality

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  • Robert A. Connolly
  • Chris Stivers

Abstract

We study the comovement of public real estate returns and inflation shocks over 1981–2022, using both survey‐based expected inflation and the Consumer Price Index (CPI). We find a complex relation that is: strongly negative during weaker‐economic (WE) times over the 1980s and 1990s, when stagflation was more a concern; strongly positive during WE times over roughly 2000–2022, when low growth with low inflation tended to be more a concern; and marginally negative otherwise. Linking inflation to both macroeconomic fundamentals and real estate operational data, we show that inflation shocks comove with changing beliefs about the underlying economic‐growth state and/or the risk premium. Thus, we argue that inflation nonneutrality has a central role in understanding our findings.

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  • Robert A. Connolly & Chris Stivers, 2025. "Public real estate returns and inflation shocks: The central role of inflation nonneutrality," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 53(5), pages 906-948, September.
    • Handle: RePEc:bla:reesec:v:53:y:2025:i:5:p:906-948
    DOI: 10.1111/1540-6229.12495
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