As is the case with equities, those buildings that have the best chance to grow rents in line with inflation will perform the best.
These include buildings that have a unique appeal (i.e. tenants have no choice but to pay more or move out in favour of a new tenant who can) or who have leased to secure tenants on inflation-linked terms.
A great example of this latter category would be GP surgeries. These are typically leased to GPs on long-term inflation-linked leases ultimately backed by the UK government.
Infrastructure plays such as toll roads, hospitals and schools can also provide some inflationary hedge.
Here the UK Government pays private investors to fund concessions which run these assets on long-term leases with payments linked to inflation.
Finally, there is a new breed of multi-asset investment vehicles which has investment objectives to protect the value of an investment at least in line with inflation.
These vehicles often take advantage of a wide range of complex financial instruments to maximise their chances of meeting this objective.
These vehicles should always be carefully researched to ensure they are run by the appropriately experienced team.
Protecting investments from inflation is essential. Over time, the compound impact of inflation can significantly reduce your assets: an annual rate of 1.5 per cent, for instance, will reduce £100,000 to around £75,000 over 20 years.
The peculiarities of our current predicament – expected higher inflation from a devaluation rather than strong economic growth – gives rise to a particular challenge.
However, with careful thought and the full use of all the investment levers available to us, we can meet this challenge on behalf of our clients.
Andrew Summers is head of collectives for Investec Wealth & Investment
