The Impact of Inflation and Vacancy on Real Estate Returns
The impact of inflation on the value of assets is considered one of the primary financial concerns of long-term investors. While actual and expected inflation have slowed considerably since the early 1980s, concern over future increases is still a consideration for long-term investors.Ibbotson and Fall, Ibbotson and Siegel, Brueggeman, et al., Fogler, hartzell, et al., and Rubens, et al., conclude that real estate compensates the investor for inflation risk. When real estate is added to a mixed-asset portfolio, the inflation risk of the expanded portfolio is substantially below that of the original portfolio (ex-real estate).The purpose of this study is to examine the relationship between the performance of commercial real estate and inflation. Unlike previous studies, this study examines real estate performance during both high and low inflation periods. The results show that real estate does provide an inflation hedge. Second, real estate returns are broken down by two major property type categories (office and industrial) to determine if any property type differences exist. A major difference is found between the inflation hedging effectiveness of office and industrial properties. Third, the differences are further analyzed in relation to vacancy rates in the two property types. A structural imbalance in the office market is evidenced by high vacancy rates. Therefore, the relative impact of vacancy rates upon office and industrial property performance is examined and found to be a significant factor in explaining returns, thus affecting inflation hedging characteristics.
Volume (Year): 6 (1991)
Issue (Month): 2 ()
|Contact details of provider:|| Postal: |
Web page: http://www.aresnet.org/
|Order Information:|| Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323|
Web: http://pages.jh.edu/jrer/about/get.htm Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- W. B. Brueggeman & A. H. Chen & T. G. Thihodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354.
- Carlson, John A & Parkin, J Michael, 1975. "Inflation Expectations," Economica, London School of Economics and Political Science, vol. 42(166), pages 123-38, May.
When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:6:n:2:1991:p:153-168. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (JRER Graduate Assistant/Webmaster)
If references are entirely missing, you can add them using this form.