Bob FraserCFO & Macro Strategist | Data-Driven Investing Expert | Speaker & Author

One of the key things driving up inflation is constructions costs | John Chang

Name: One of the key things driving up inflation is constructions costs | John Chang
Uploaded: 2022-08-23T08:00:25+00:00
Duration: 46 s
Channel: Bob Fraser
Description: In this segment, John Chang explains how different real‑estate property types respond to inflation. He notes that assets with frequently adjustable…

23 Aug 2022 · 1 min

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In this segment, John Chang explains how different real‑estate property types respond to inflation. He notes that assets with frequently adjustable rents—such as apartments, self‑storage facilities, and hotels—can directly capture inflationary pressure, whereas long‑term lease properties like single‑tenant retail centers and office buildings offer some built‑in inflation resistance. Chang then highlights a key driver of overall inflation: construction costs, which are rising at about 17.5%—more than double the current headline inflation rate of 8.5%. This rapid increase in construction costs raises the replacement cost and underlying value of existing buildings, making them more valuable relative to new construction.

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Certain property types are better at this than others. You look at, say, apartments, self-storage, hotels, they all adjust their rents, whether it's daily, monthly, or annually. And so they're able to capture that inflationary pressure as opposed to many other types of businesses and investments. Uh, some of the long-term lease product types, uh, like a single tenant or retail centers or office buildings, they still have some inflation resistance, One of the key things driving up inflation is construction costs, right? So we have 8.5% inflation right now, but construction costs are climbing at 17.5%, right? So that means that the underlying value of the building is rising faster because you can't replace it as easily.