REITs provide protection against high and moderate inflation across a range of property types, says Nareit Vice President of Research Nicole Funari.
Speaking on Nareit’s REIT Report podcast, Funari noted that, in terms of how REITs respond to inflation pressures, “people are inclined to believe that there might be differences among the property sectors, but the data doesn't bear that out.”
Funari noted that while the hotel sector might be viewed as a safer bet against inflation, due to the constant repricing of rooms, the office sector, for example, has the benefit of staggered leases and rent escalators.
Funari added that “across all property sectors, REITs seem to provide some inflation protection when it's high and moderate.” She noted that high inflation would be a level above 7%, and moderate inflation in a 2.5% to 7% range.
Commenting on January Consumer Price Index data, which showed inflation up 6.4% year over year, Funari noted that inflation “is really hitting Americans where they most feel it,” with increases in the cost of shelter and food.
In terms of the macroeconomic climate for commercial real estate, “we're not in recession phase yet, although many think that it's possible,” Funari said. However, REITs are well-positioned to weather any storm, she said, given their strong balance sheets heading into the pandemic and their ability to take on more debt.