Property is usually regarded as a good hedge against inflation. Landlords’ ability to increase rents can cushion the blow from rising costs. If inflation is driven by strong economic growth, rents go up, buildings stay full and landlords are assured of rising income.
Worries about the economy, however, have turned this strategy on its head. Strained household budgets and stretched corporate balance-sheets could limit tenants’ ability to pay more rent, jeopardising investors’ returns. Moreover, with the cost of debt rising, owners of office towers, hotels, shopping malls and other types of property risk being stuck with lower returns on assets that may now be overpriced. Many fear a correction is coming.
