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In Conversation: How Are Inflation Dynamics Altering the Real Estate Valuation Process?

In 2020, the Federal Reserve adopted a framework that calls for inflation to average 2 percent over time. Multiple rounds of stimulus have primed the fiscal pump. Some economists expect prices to spike as the U.S. emerges from the COVID-19 pandemic and pent-up savings are unleashed. 

Inflation figures are ubiquitous in valuation calculations. In normal times, inflation measurements are faulty but reasonable: Data is consistent and the spending basket that is used to calculate inflation is unlikely to change drastically. But in the post-COVID era, all of this could change and become a problematic input for valuation models.

Peter Muoio, Senior Director of SitusAMC Insights, and Brian Velky, SitusAMC Head of Real Estate Valuation Services, discuss the inflation dilemma, and how these changing dynamics are altering the valuation process. They provide important considerations not only for valuation professionals, but anyone seeking to understand commercial real estate performance and the benefits relative to other investment alternatives.