CRE is a hedge against inflation for investors in several ways. Here’s a closer look.
The tradition has been that commercial real estate protects against inflation for investors. Commercial real estate will naturally adjust with inflation and thus keep investors afloat. Inflation is the increased price of goods and services over time or the decrease in purchasing power. CRE investors dealing with inflation in 2022 must face the ins and outs concerning how commercial real estate protects against inflation or not today. If you are looking to purchase or sell CRE in Frederick, Maryland, Clagett Enterprises can help!
Increased Rental Rates
CRE investors can stay afloat when inflation occurs by increasing rental rates. As new tenants come in, an investor can adjust the rental rate according to the updated price of the dollar. As long as the rate of inflation is less than the increasing rate of the property’s value, then the investor is in good shape. Maintenance costs of the building should also stay relatively the same.
Natural Scarcity of Space
Scarcity can increase demand, and that increases the price of that object. Over a long period of time, space will eventually become a scarcity in different areas, such as in cities or growing towns or even countries. When building space becomes scarcer, inflation of a healthy kind occurs. Commercial real estate is an asset protecting investors and increasing income.
Increased Rates by Intervals
Increasing the rental rate works differently depending on the type of property. If an investor has a property with long-term leases of about twenty years or more, there is still a way to adjust for inflation. Some leases allow investors to increase the rental rate by intervals in proportion to inflation. Some increases are greater and some less.
Factors That Affect CRE Negatively
There are factors that do affect whether or not inflation affects CRE positively or negatively. For instance, not all inflation is bad, but not all is good. A healthy, growing economy will typically cause an inflation rate of about 2% per year. On the other hand, inflation due to stagnant demand, increased unemployment, or other factors can make it hard for CRE investors.
The property type also matters. Given a number of factors, such as the typical lease length and the demand for that property type, a CRE may struggle or prosper. Rising operational costs can also affect the value of a CRE investment.
No matter the times, Clagett Enterprises can help you sell or purchase commercial real estate in the Frederick, Maryland, area. Commercial properties will always be in demand, and we are here to help you with the process.
Trust the Professionals at Clagett Enterprises for Your Realty Needs
If you’re looking for an experienced property management company, the perfect realtor for your property, or a professional to assist you during your purchase of any home, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistance with commercial sales, leasing, management, and development and consulting, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook and Linkedin.