05 April 2023 | 5 min.

Real estate and inflation: a good marriage?

Core sector funds offer stability in good times and bad 

For more than 130 years, a.s.r. real estate has been investing in real estate and managing real estate portfolios on behalf of institutional investors. We offer our institutional investors a platform that allows them to invest in retail, residential, office and science park real estate as well as agricultural land. And not just in the Netherlands—our real estate expertise is global. Thanks to our effective diversification, future-proof strategy and investments in core real estate, the a.s.r. real estate platform strikes an optimal balance between return on investment and resistance to inflation. 

The unpredictability of inflation 

To get a grip on inflation, central banks will continue to raise interest rates in the first half of 2023. As a result, the pressure on property values, which first became visible in summer 2022, will persist. In the long term, inflation trends depend on many factors. Deflationary forces such as aging and technological progress and inflationary forces such as climate change and de-globalisation work against each other. In addition, unforeseen developments—the COVID-19 pandemic, the war in Ukraine, temporary energy price caps and others—have followed each other in rapid succession.  

A well-considered portfolio is crucial  

In periods of high inflation, the question arises whether the traditional view of real estate as a hedge against inflation holds true. We take a clear stance on this: real estate is not necessarily a good inflation hedge. That being said, a real estate platform of core funds does offer the best possible inflation hedge. Moreover, a.s.r.'s real estate platform is distinctive thanks to the underlying portfolio strategies focused on quality, sustainability and, above all, perpetual value. 

A strong strategy as a foundation 

The net rental income growth of our funds has exceeded benchmarks for years. Our portfolio strategy, informed acquisition policy and active management play a significant role in providing an inflation hedge. We pursue a socially responsible, sector-specific and situation-specific policy for indexing rents. Our focus on long-term relationships pays off in long-term contracts that provide stability in turbulent times. We also take structural developments into account, such as urbanisation, increasingly compact shopping areas and the rise of the knowledge economy. 

Asr Real Estate Netto Inkomstengroei Benchmarks En Asr Fondsen V01 APR 2023 Alt (EN)

Source: MSCI and a.s.r real estate (2023) 

Stable returns thanks to diversified risk 

By investing in a variety of strong segments and regions, we spread risk. In the coming years, this diversification will contribute to stable returns. Although the government intends to limit residential rental income growth to wage growth, the option of passing on inflation to tenants of offices, retail properties and leaseholders of agricultural land remains available. 

High occupancy as the first line of defence 

The most important inflation hedge in real estate is the occupancy rate. By investing in high-quality, sustainable real estate in strong regions in attractive locations, a.s.r. funds realise high occupancy rates, even in economically less favourable times. 

Asr Real Estate Gemiddelde Leegstand 1995 2022 V01 APR 2023 (EN)

Source: MSCI and a.s.r. real estate (2023) 
* Offices benchmark and fund performance are 2017-2022 

Rural real estate provides diversification and a good inflation hedge 

Rural real estate returns have a low correlation with other real estate sectors. The value of rural areas is driven by land prices, interest rates and inflation. Agricultural land lease contracts are almost always adjusted based on CPI. 

a.s.r. real estate fund strategies (the Netherlands) 

  • The ASR Dutch Prime Retail Fund invests in high-quality retail properties in three main segments: high street retail in the top 15 cities, dominant neighbourhood shopping centres and supermarkets. 
  • The ASR Dutch Core Residential Fund invests in high-quality affordable rental housing in the strongest economic and demographic areas.
  • The ASR Dutch Mobility Office Fund invests in sustainable offices in the G-5 in easily accessible locations around intercity hubs.
  • The ASR Dutch Science Park Fund invests in commercial real estate in science parks and thus with impact on Dutch knowledge sectors. 
  • The ASR Dutch Farmland Fund invests in farmland that offers stable returns and a unique diversification effect. 

Spreading your risk across core sector funds offers the best hedge against inflation 

Current macroeconomic conditions are creating uncertainty among investors. High inflation and rising interest rates continue to put pressure on property values in 2023. However, a closer look reveals the distinctions between value-added and core funds, between sectors and between portfolio strategies. The a.s.r. real estate platform offers the optimal inflation hedge thanks to a focus on core properties with high occupancy rates, diversification between and within sectors and a future-proof strategy. Moreover, we deliver tailor-made solutions to establish real estate portfolios which fit the risk profiles of each of our diverse client base of investors. 

This is a marketing communication. Please refer to the prospectus of the mentioned funds before making any final investment decisions. Investing in any of the a.s.r. real estate funds involves risks. You may lose your money. Past performance is no guarantee for the future. The decision to invest in the promoted funds should take into account all characteristics or objectives of the promoted funds, as described in the prospectus of the respective fund. The prospectus and further information on the sustainability aspects of the promoted funds can be found here: en.asrrealestate.nl/investments. a.s.r. real estate is manager of investment funds and is included in the AFM register. This report has been compiled as carefully as possible. Nevertheless, it is possible that information in this report is incomplete or incorrect. a.s.r. real estate is not liable for this.