Inflation Resistance

Quantifying CRE’s inflation hedge potential. A review of rent growth and CPI trends shows where CRE may offer stronger inflation resistance than the broader stock market.

• To test the relationship between rent growth and inflation, the analysis uses the Pearson Correlation Coefficient to measure how closely the two variables have historically moved together.
• The study covers a 25-year period for five main property types, while self-storage is limited to eight years of available rent growth data.
• Although the period includes only one major inflation surge, headline CPI reached the mid-4 percent range several times, allowing the correlation analysis to capture multiple spans of elevated inflation.
• Rent gains also reflect the influences of new supply, economic trends, and behavioral shifts on property performance, so the results should not be interpreted as proving direct causation.
• As a baseline, the S&P 500 showed a low 16.8 percent correlation with inflation using the same methodology. However, other calculation methods yielded negative correlations, suggesting equities move independently of or inversely with inflation.

Inflation pass-through varies by property type. Lease length, contract terms, and demand shifts help explain why office, retail, and industrial rents show weaker-to-moderate links with inflation. 

• Office properties showed the weakest relationship with inflation, with just a 15.9 percent correlation between rent growth and changes in CPI.
•  Long office lease terms and limited use of rent escalators reduce responsiveness, while hybrid work has further weighed on aggregate rent growth over the past five years. 
• Retail rent growth showed a stronger, though still modest, 39.4 percent correlation with inflation, partly because leases are more likely to include built-in rent escalators. 
• Industrial rent growth had a moderate 49.2 percent correlation, supported by rent escalators that may be fixed to CPI. 
• Based on the calculations, inflation explains roughly 24 percent of the variation in industrial rent growth, with R-squared measuring that explanatory power, placing it above the S&P 500 baseline but below the stronger CRE sectors. 

Higher-correlation sectors stand out. Self-storage, multifamily, and hotels show the strongest inflation resilience, while the broader results support CRE’s role as a potential portfolio diversifier.

• Self-storage showed a 51.3 percent correlation with inflation, supported by month-to-month lease structures that allow rents to adjust more frequently.
• However, the self-storage result is based on only eight years of data, while pandemic-related demand shifts, elevated construction, and discounted street rates likely also influenced the relationship.
• Multifamily properties showed the second-strongest relationship, with a 63.1 percent correlation.
• Apartment leases are usually annual, allowing rents to reset more frequently than with office, retail, or industrial leases, which generally have longer terms.
• Statistical analysis suggests inflation accounts for roughly 40 percent of multifamily rent growth movement
• Hotels showed the strongest rent-growth-to-inflation relationship, with a 65 percent correlation, reflecting daily rate adjustments, while about 42 percent of the variance in rent growth is statistically linked to inflation.
• Overall, stronger correlations across most major property types suggest CRE may offer more inflation resistance than equities and potentially other asset classes, especially in a prolonged elevated-inflation environment.

Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar
Group, Inc.; RealPage, Inc.; S&P Global; Yardi Matrix