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What does uneven inflation mean for investors?

On Behalf of | Jun 7, 2018 | Commercial Real Estate

Economic trends are showing signs of inflation in Houston and throughout the United States. The normal cues for inflation are occurring in different areas of the marketplace and evidenced by increased construction costs, labor shortages and rising costs of commodities. High-performing companies shielded from inflation risks include online retail giants like Amazon, whose approach to maintaining profit margins has given it an advantage.

Commercial real estate has been largely relied on as a hedge. Rising rents become the norm when inflation rises due to the leasing rates for property management companies being influenced by the commercial price index. Whenever prices and wages rise, the real estate market prices also increase.

Commercial mortgages, real estate closings and secured transactions can all be influenced by these inflation conditions. Rent and expenses will likely increase while net income may do so gradually. Expenses might outpace the rate of growth for income.

Online retailers are competing with offline retailers as the closure of traditional stores is influenced by supply and demand factors. Rental rates for both commercial and residential real estate will likely increase as signs of uneven inflation continue. The Fed may respond by increasing short-term interest rates, which could cause increased activity among Treasury yields. Increased capitalization rates might reduce any impact in the area of increased income.

Uneven, fragmented inflation could make it increasingly difficult to implement conventional protective safeguards. Property and market factors may require a unique approach. Commercial real estate investors might still find it beneficial to acquire properties due to tax benefits and access to a tangible asset.

When considering investing in commercial real estate, a business and commercial lawyer specializing in real estate litigation may assist with any sales and purchase agreements. Their experience in secured transactions, zoning laws, venture capital and real estate land use might be useful in helping clients understand the risks associated with the various investment options.


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