Is commercial property a hedge against inflation?

Abstract

Historically, investment in commercial property has been perceived as providing a hedge against inflation. A complete hedge against inflation is formally defined as an asset where the nominal returns vary in a positive one‐for‐one way with inflation. The belief that commercial property is an inflation hedge has persisted, notwithstanding the fact that many empirical tests have proven inconclusive. Use of the traditional methodology in this paper also produces poor results, although the hypothesis that commercial property is a hedge cannot be rejected. Explores the reasons for these poor results, and introduces a method of testing for a long‐run hedging relationship, based on cointegration. Cointegration techniques reject the hypothesis that commercial property is a consistent long‐run hedge against inflation.