The Azucena Take: The State of Inflation
The topic of inflation has been on every investor's mind since the recovery started. Many are asking how concerned we should be, how bad is it, and how it will impact their investments. Inflation is a serious topic, but you shouldn't expect doom and gloom around the corner.
Thankfully, there are real experts with solid insights who understand the market and could provide a more insightful understanding.
Inflation is currently at 5.4%, way above the desired 2% and at the highest since 2008. Jerome Powell of the Federal Reserve testified before congress that they are monitoring the inflation and will step in should it get worse in the next six months. While six months might sound like a long wait, it has been speculated that they want to give the economy more time to recover before raising interest rates and tightening the money supply.
The cause of the spike has been the hit to supply chains during the pandemic. As the population gets vaccinated and life returns to normal, there is a demand for everything. Unfortunately, supply is having a hard time keeping up with demand as the manufacturing industry is still trying to keep up. Not helping is that acquiring raw materials has also been difficult. High demand with low supply will always result in inflation.
Such inflation was anticipated and it’s expected that this will be a short-term problem as supply chains recover and manufacturing starts to meet consumer demand. Most experts believe this will last between three to six months. Should it continue to grow, the Feds will step in to prevent a financial disaster.
What does this mean for the commercial and investment real estate market?
Investment real estate has been one of the best investments against inflation. The hit on supply has transformed the residential real estate market completely into a sellers’ market. This has created a domino effect in which demand for apartments has risen and so has the rent (especially if the leasing agreements have a clause that ties the rent to inflation).
Other commercial properties have also seen a drop in vacancy rates in the last few months. At the same time, rent for retail space along with industrial and self-storage have gone up.
The market has also become very favorable towards those who want to sell off some investments. While it’s tempting to do it alone, it’s better to reach out to a professional team (like us). We could market it to the right buyer and give you the most accurate estimate of its value.