Real estate and inflation
The nominal value of a property is defined by the development of the (nominal) rent and the discount rate. In addition to the interest rate environment, the discount rate is also particularly dependent on the risk premiums. In this article, the rental income will be considered in particular.
The behaviour of rents in relation to inflation depends on the structure of the rental contracts and thus the local legal framework - this is also the reason why empirical findings from abroad can only be transferred to the situation in Switzerland to a limited extent. For example, analyses from the USA from 1978 to 2016 show that the rental income from retail space is 102% protected against inflation, but residential space only 56%. This can be explained by the fact that in the US market, contracts for retail space are linked to the inflation trend, while those for residential space are only partially linked.
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