That means finding ways to hedge against inflation may not feel as urgent in Europe as it does in the U.S.
According to William C. Wheaton, economist at the Massachusetts Institute of Technology and professor at the MIT Center for Real Estate, the issue lies in large cities. In big metropolises, house prices outpace inflation due to the concentration of work opportunities, whereas in more rural areas, home prices barely keep pace with inflation.
This means that cities with strong demand like London, Paris, San Francisco and New York could see their prices boosted and enter bubble territory, whereas rural areas, such as the Midwest in the U.S. or certain areas of southern Europe, could experience a drop in house prices.
People wanting to take advantage of inflation have looked to invest in regions of the U.S. where inflation rates are highest and unemployment is low, said Fundrise’s Miller.
“People will look to buy in parts of the country that have the highest inflation rate, like the Sun Belt region or the mountain states rather than the Northeast or Ohio,” he said.
Should you invest in commercial real estate?
Appreciation in commercial real estate has been more timid than housing overall, according to economists, at times even falling short of matching long-term inflation rates.
Leases in office buildings tend to be longer than in housing, meaning rents take longer to adjust to inflation, which can be a disadvantage to a real estate investor. And during the pandemic, the rise of remote work and online shopping have made retail and office spaces less in demand.
“In the past, people have invested in real assets because they couldn't find value in financial assets,” Lizieri said. “There was a sense that equities were so expensive relative to historic values that they looked for other sources of income and shifted to real assets. That might not be the case right now.”
Multifamily housing is a different story. Since leases are typically up for renewal every 12 months, landlords have more opportunities to bake factors like utility cost increases into rent.
What about REITs?
Real-estate investment trusts are companies that own or manage real estate operations such as office buildings, apartments, hotels or shopping malls. Like with a mutual fund, one share of a REIT offers partial ownership of the assets held by the fund. One advantage is that they are required by law to dispense 90% of taxable income to shareholders.
REIT exchange-traded funds, meanwhile, contain multiple REITs, and the indices behind them can be adjusted periodically to replace bad performers with good ones. In the past year alone, such products took in more than $13 billion from both professional and retail investors, a 10% increase from the prior year, according to data compiled by Bloomberg. One of the largest—the Vanguard Real Estate ETF—rose 37% in 2021 compared with 27% for the S&P 500.
“A REIT or a REIT ETF is a pretty good way to get diversified exposure to the real estate asset class,” said Ross Mayfield, an investment strategy analyst at Robert W. Baird & Co. “They usually have a pretty nice income associated with them, and they performed really strongly last year in an inflationary environment.”
This article was provided by Bloomberg News.