How Does Inflation Affect REIT and Stock Performance?
January 13, 2022 | Nicole Funari | Nareit
In 2021, consumer prices rose dramatically as the economy worked through supply chain issues during the ongoing recovery from COVID-19 induced shut-downs. Annual inflation measured by the Consumer Price Index reached 7.0% in 2021, the highest annual rate since 1981. While inflationary pressures are expected to persist well into 2022, this analysis shows that REITs have historically provided protection against inflation and outperformed the broader stock market during periods of moderate and high inflation. In 2021, with inflation running well above recent trends, REITs outperformed the S&P 500 by 12.6 percentage points.
REITs’ operating performance has generally more than kept pace with inflation over the past few decades. Long term leases typically have inflation protection built-in, and shorter-term leases are based on current price levels. Also, REITs keep a portfolio of leases, a portion of which are negotiated every year, so even REITs with longer-term leases have opportunities to reprice. Finally, as owners of real assets, REITs typically enjoy an appreciation in portfolio value along with the price level. With rents and values tending to increase with prices, REIT dividends help provide a reliable stream of income even during inflationary periods.
