{"title":"Office Real Estate as a Hedge against Inflation and the Impact of Lease Contracts","authors":"Ivo de Wit","doi":"10.3905/jai.2022.1.175","DOIUrl":null,"url":null,"abstract":"This article analyzes the hedging potential of real estate and especially looks at the impact of lease contracts in various countries around the world on the inflation hedge capability for both expected and unexpected inflation. The dataset consists of direct real estate rent and capital value data for 59 cities/MSAs in 25 countries between 1991 and 2020 to make international comparison over a long time period possible. The results indicate that real estate is a good hedge against inflation, and especially against unexpected inflation. The inflation hedge capability of real estate is better for income than for change in capital value, as rent contracts are adjusted for inflation. Countries with graduated rent and revaluated rent contracts have the most positive relationship with inflation. The analysis of the lease length confirms that real estate is a better hedge against unexpected inflation, but increasing the lease length does not seem to have a positive influence on the hedge capability against unexpected inflation.","PeriodicalId":45142,"journal":{"name":"Journal of Alternative Investments","volume":null,"pages":null},"PeriodicalIF":0.4000,"publicationDate":"2022-09-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Alternative Investments","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/jai.2022.1.175","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This article analyzes the hedging potential of real estate and especially looks at the impact of lease contracts in various countries around the world on the inflation hedge capability for both expected and unexpected inflation. The dataset consists of direct real estate rent and capital value data for 59 cities/MSAs in 25 countries between 1991 and 2020 to make international comparison over a long time period possible. The results indicate that real estate is a good hedge against inflation, and especially against unexpected inflation. The inflation hedge capability of real estate is better for income than for change in capital value, as rent contracts are adjusted for inflation. Countries with graduated rent and revaluated rent contracts have the most positive relationship with inflation. The analysis of the lease length confirms that real estate is a better hedge against unexpected inflation, but increasing the lease length does not seem to have a positive influence on the hedge capability against unexpected inflation.
期刊介绍:
The Journal of Alternative Investments (JAI) provides you with cutting-edge research and expert analysis on managing investments in hedge funds, private equity, distressed debt, commodities and futures, energy, funds of funds, and other nontraditional assets. JAI is the official publication of the Chartered Alternative Investment Analyst Association (CAIA®). JAI provides you with challenging ideas and practical tools to: •Profit from the growth of hedge funds and alternatives •Determine the optimal mix of traditional and alternative investments •Measure and track portfolio performance •Manage your alternative investment portfolio with proven risk management practices