Commercial real estate is often described as a hedge against inflation, based on the idea that property values and rental income can keep pace with or outstrip rising prices. A recent analysis by Marcus & Millichap tests that assumption by quantifying how closely rent growth has tracked changes in the Consumer Price Index over the past 25 years.
The researchers used the Pearson Correlation Coefficient to measure the relationship between rent growth and inflation across major property sectors. Their work underscores that inflation pass-through is not uniform across commercial real estate, but varies meaningfully by asset type and lease structure.
The study finds that office properties have the weakest statistical link between rent growth and inflation. Longer lease terms and more limited use of rent escalators contribute to this outcome, resulting in a 15.9% correlation between office rent growth and CPI changes. That relatively modest figure suggests office income has been less responsive to inflation over the study period.
Retail properties show a stronger connection to inflation. According to the analysis, retail rent growth exhibits a 39.4% correlation with CPI. The report attributes this to the prevalence of leases that embed regular rent escalations, which allow landlords to adjust income more systematically over time.
Industrial assets demonstrate an even tighter relationship with inflation. Industrial rent growth posts a 49.2% correlation with CPI, which the analysts link to lease structures that often include rent escalators that may be indexed directly or indirectly to inflation benchmarks. This supports the view that industrial income has tended to move more closely in step with broad price levels.
The strongest inflation resistance in the data appears in self-storage, multifamily and hospitality. Self-storage rent growth shows a 51.3% correlation with inflation, though the report notes that this figure is based on an eight-year data set shaped by pandemic-era demand shifts, a wave of new development and discounted street rates. These factors may influence how representative the result is over a longer cycle.
Multifamily rents display a 63.1% correlation with CPI. The analysis points to the typical one-year lease term in apartments, which allows for frequent resetting of rents and more rapid adjustment to changing price environments. Hotels register the highest measured connection, with a 65% correlation between revenue performance and inflation.
In the hospitality sector, the researchers highlight that room rates can be adjusted daily, creating a direct and frequent mechanism for responding to inflation trends. They report that approximately 42% of the variance in hotel rent growth is statistically linked to inflation, underscoring the sector’s high level of income responsiveness.
Across the spectrum of property types, the study concludes that while the strength of the inflation relationship differs by sector, most major commercial real estate categories show a meaningful degree of inflation resistance. The analysts note that, taken together, these stronger correlations imply that commercial real estate may provide more inflation protection than equities during extended periods of elevated inflation.
