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What Does Inflation Mean for Retail & Leisure Rent Reviews?

Posted by Colliers on 11th October 2022 -

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Historically, open market rents on retail & leisure property have been an effective hedge against inflation, while on the other hand, most index-linked rent reviews are capped at levels that are well below current inflation levels. This begs the question as to whether such properties are more valuable with open market or inflation-linked rent reviews.

Last year we launched an online tool to help calculate the effect of movements in the Consumer Price Index (CPI) and Retail Price Index (RPI) on rent reviews which are geared to these indices. Not surprisingly, traffic to the webpage has increased substantially in recent weeks as inflation has climbed and future projections about the level it might reach have become steadily bleaker.

The graph below shows how the usual caps on RPI/CPI-linked rent reviews will limit index linked rents to well below current/forecast inflation levels for some considerable time:

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