Impact of Inflation on the Real Estate 

Most Americans can tell you the costs of living are rapidly rising. The Consumer Price Index increased 9.2 percent year on year in April 2022, the quickest annual inflation in 40 years. The Bureau of Labor Statistics (BLS) reports that rising rent and food costs were partially to blame, as was a newly emerging surge in gas prices that will undoubtedly become more distinct in March’s inflation report. As a result, Americans are paying more for everything; electricity and gas to keep their homes comfortable, staples at the grocery store, dinner out with friends, and probably the most painful of all, at the gas pump.

Is Now a Good Time to Make a Move?

If you’re considering buying or selling a building, retail center or warehouse anytime soon, you may have questions or concerns about inflation’s impact on the commercial real estate market. Even before this recent round of inflation, the real estate market was extremely hot. It has not been uncommon for a building in either the Denver or Colorado Springs metropolitan area to go on the market, receive several offers—many thousands or even tens of thousands above the asking price, and be under contract in mere days.   

With inflation being a significant influence on the commercial real estate market, buyers and sellers need to know how it will impact them and their financial and property goals.

Benefits of Inflation for Real Estate

While people typically think of inflation negatively, it can benefit the real estate market. These include:

• Rental property values increase, benefiting investors and landlords. When more people can’t afford to purchase real estate or, they turn to leasing.
• Landlord’s lower vacancy rates during inflation, provide opportunities to charge a premium.
• Property values often increase with inflation, which is excellent for sellers as they can get more for their properties.

Downsides of Inflation for Real Estate

Inflation also has its downsides in real estate, especially residential properties. For example:

• A higher cost for borrowing debts. Banks may be reluctant to offer loans. When they do approve them, it’s at higher interest rates.
• When transportation costs increase, and businesses are looking to tighten their financial belts, moving a business out of a house or upsizing might be less likely. Landlords who lease to small businesses that are already accustomed to remote them may see reduced demand.
• Increased rent rates will keep some potential entrepreneurs and small businesses from their goal of expanding operations.
• Building new construction is very expensive.
• Businesses are less likely to purchase as renting might be more affordable.

A Real Estate Lawyer Can Help

While you can’t control inflation’s impact on real estate, you can take control of your real estate situation. You’ll have the most control with a seasoned real estate attorney’s representation, whether buying, selling, or renting. Your attorney can help you see the benefits and downsides to any potential transaction you consider. Call Fischer Law Office at 720-465-1145 or contact us online to schedule a free consultation.