Inflation

An increase in exit cap rates and cost of debt – as well as operating costs rising faster than rental rates – were among potential inflation-driven challenges cited by managers.

The topic is top of mind for the region’s investors and has raised concerns that property markets abroad may have become too expensive.

While rising prices are a top concern for global investors, the asset class is well insulated from inflation’s negative effects.

Historically, real estate has performed well when prices rise, but the pandemic era raises unique questions and challenges.

Inflation fears are back but mitigating forces should not be underestimated, says Jose Luis Pellicer, head of investment strategy and research at M&G Real Estate.

Henning Eckermann, the Swiss alternatives manager’s chief economist, warned investors gathered at the Infrastructure Investor: Europe 2010 forum that developed markets face 75% chance of inflation in the range of 5% to 7%. As a hedge, he recommended they increase their exposure to real assets.

The $119bn pension’s new ‘absolute return’ asset class will include infrastructure investments and could lead to a search for a manager to run the investment programme. The move is part of a wider asset allocation shift to be unveiled at its August meeting after CalSTRS saw its portfolio value tumble 25 percent over the last year.