{"id":1004111483,"date":"2015-01-19T09:21:57","date_gmt":"2015-01-19T17:21:57","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004111483"},"modified":"2022-12-07T05:42:04","modified_gmt":"2022-12-07T13:42:04","slug":"economy-watch-low-inflation-generally-positive-for-cre","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/economy-watch-low-inflation-generally-positive-for-cre\/","title":{"rendered":"Economy Watch: The Benefits of Low Inflation"},"content":{"rendered":"

By Dees Stribling, Contributing Editor<\/em><\/p>\n

On Friday, the Bureau of Labor Statistics reported that the CPI was down 0.4 percent in December. That\u2019s the steepest drop in that particular metric since 2008, which has seen modest increases during most months, and for most years has been staying under 2 percent, which happens to be the Fed\u2019s target for inflation. There\u2019s some argument about why inflation has been so persistently low, but at least one thing\u2019s certain: the low interest rate policies pursued by central banks in most of the industrialized world haven\u2019t stoked the fires inflation during a period of stagnation. This isn\u2019t the \u201970s.<\/p>\n

During all of 2014, the CPI was up only 0.8 percent. Most of the December drop, and for the whole year, has been because of falling energy prices. Gasoline, of course, has fallen through the floor, but fuel oil\u2019s been dropping a lot as well. On the other hand, the cost of natural gas and electricity both increased for the month, though natural gas isn\u2019t as costly as it was a year ago (but electricity costs more, including prices to the commercial and industrial sectors.<\/p>\n

Low inflation benefits some participants in the economy, such as consumers, but what about commercial real estate? Arguably, it\u2019s a benefit. It helps keep a lid on property operating costs, but only to some extent. For instance, the decline in energy costs helps building owners, either directly through lower heating and cooling bills, or indirectly, as when the low price of gas spurs greater use of distribution facilities or encourages consumers to buy more at retail outlets. A period of low inflation also lessens the upward pressure on wages, which benefits any business, including the real estate sector.<\/p>\n

But does a period of low inflation help keep rent increases down as well? Not as much, since rents tend to be more a function of tenant demand vs. landlord supply than an abstraction like the inflation rate. The leading example of that in our time is the apartment market. Demand has outpaced supply for some years now, and the result is higher rents, which are reflected in the BLS\u2019 shelter index, which has rising faster than the CPI as a whole in recent years. By contrast, the demand for retail space has been weak since the end of the recession, and so retail landlords haven\u2019t been in a position to collect higher rents. Inflation doesn\u2019t have much to do with it.<\/p>\n

Also, low inflation, especially for products that consumers use all the time, is driving consumer sentiment upward, which will benefit retail properties most directly, and other property types indirectly. The preliminary Reuters\/University of Michigan consumer sentiment index for January was at 98.2, up from 93.6 in December, a larger increase than expected. Besides a more robust economy, low gas prices are getting a lot of credit for the uptick in confidence.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Low inflation is a positive for the commercial real estate industry. 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