Germany investors urged to check leases’ inflation proofing

Germany’s real estate markets proved highly resilient through the covid health crisis, particularly core offices residential, healthcare and logistics.

One of the next challenges for real estate appears to be inflation. “Inflation has been not an issue for some time but it’s now key,” says Linklaters’ Carsten Loll. “It’s certainly back on the agenda and needs to be back on the agenda for real estate,” he told Real Asset Insight’s Richard Betts.

Inflation could play to the strengths of some sectors, however. “The majority of core offices or resi leases are nicely hedged against inflation,” Loll said.

Some leases allow the rent to be increased on an annual basis by the rate of inflation. But in some cases this is not the case. “Investors have to have a closer look at the lease agreements themselves and the respective clauses covering inflation,” Loll stated.

Residential leases commonly have a stepped rent or rent linked to inflation as do core offices. “It can be more problematic in retail leases where sometimes the tenants were strong and could negotiate hurdles that you have to meet before you increase the rent. It’s more problematic there. In the long run you lose money.”

Click on the video to watch the full interview or listen to the podcast below.