August 9, 2022

Net Lease Real Estate vs Inflation and Interest Rates

August 9, 2022 | Jim Kammert | Four Springs Capital Trust

What is in Store for Net Lease Real Estate Investing?

In recent months, interest rates have risen, inflation has spiked, and the economic outlook has clouded. Naturally real estate investors, including those investing in net lease commercial properties, may wonder what is in store for net lease real estate investments. Herein, the relationships between net lease real estate performance and interest rates and inflation are examined.

In summary, since the mid-2000s, the relationships between interest rate moves and inflation levels and returns on net lease property investment have been moderate. To date, historically, net lease real estate investing has been driven predominantly by long term economic drivers and thoughtful underwriting and less so by short to intermediate term shifts in interest rates and inflation. Admittedly, high inflation has been rare since the late 1980s and the current rate increase cycle/trend is likely not yet concluded. However, early indications of moderating inflation are apparent, and the absolute levels of interest rates are not threatening to investment. Further, it is likely that cap rates/initial investment returns will increase, if yields remain higher, and prospective investment spreads can be maintained.

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