As inflation continues to weigh on the economy, investors are increasingly looking for asset classes that not only provide stability but also have the potential to outperform in an inflationary environment. Historically, real estate has been one of the strongest inflation hedges, and within that sector, two asset classes stand out for their unique ability to thrive during inflationary periods: Farm Land and Medical Office Buildings (MOBs).
Both sectors are positively correlated with inflation, offering investors a way to preserve and even grow their wealth when other investments falter. Bob Waun, co-founder of Physician Property Partners (PPP) and DIRT Realty, believes these two sectors offer some of the best protection against rising costs.
“Farm Land and Medical Office real estate are uniquely positioned to not only withstand inflation but also to benefit from it,” says Waun. “They are essential, resilient, and tied to demand that increases during inflationary periods. While inflation can erode the value of other assets, these real estate classes tend to perform exceptionally well.”
Real Estate: A Proven Hedge Against Inflation
Real estate has long been seen as one of the best hedges against inflation. As prices rise, so do rents, which leads to higher income for property owners. Additionally, real estate values tend to increase over time, providing appreciation that outpaces inflation. In contrast to more volatile asset classes like stocks and bonds, real estate offers tangible, income-producing assets that maintain their value in times of economic uncertainty.
A report by JPMorgan Chase shows that real estate investments have historically outperformed inflation, with an average annual return of 8% to 12% during inflationary periods, compared to much lower returns for other asset classes. Within real estate, Farm Land and Medical Offices stand out due to their essential nature and consistent demand, making them two of the most reliable inflation hedges.
“Real estate is one of the few asset classes that truly benefits from inflation,” says Waun. “Farm Land and Medical Offices, in particular, offer a powerful combination of income generation, asset appreciation, and inflation protection.”
Farm Land: Rising Commodity Prices and Inflation Protection
Farm Land is one of the most inflation-resistant assets available. As inflation rises, so do the prices of agricultural commodities, which directly boosts the income potential of farm land. Crops such as corn, wheat, and soybeans, all of which are critical to the global food supply, tend to see price increases in response to inflationary pressures. According to the U.S. Department of Agriculture (USDA), farm income is expected to grow by 7% in 2024 due to higher commodity prices driven by inflation.
This positive correlation to inflation makes farm land an attractive investment. Unlike many other sectors that suffer during inflationary periods, farmland benefits from rising food prices, which are typically passed on to consumers. In turn, the value of farm land tends to appreciate, providing capital gains in addition to the income generated from crop production or leasing land to farmers.
In fact, a study by TIAA found that farm land values have increased by an average of 6% annually over the past two decades, with some years seeing double-digit growth in response to inflation and rising demand for food production.
“Farm Land is a classic inflation hedge,” Waun explains. “As commodity prices rise, so does the value of the land. It’s one of the few asset classes where inflation actually creates more wealth for investors.”
Medical Office Buildings: Inflation-Proof Demand for Healthcare
Medical office buildings are similarly well-positioned to benefit from inflation. Healthcare is an essential service, and the demand for medical services doesn’t diminish during inflationary periods—in fact, it often increases as an aging population requires more care. Medical office tenants, such as doctors and healthcare systems, typically sign long-term leases with built-in rent escalations that are tied to inflation. These leases, often lasting 10 to 20 years, ensure stable, predictable cash flows that rise along with inflation.
A Colliers report from 2023 highlighted that the medical office sector continues to outperform traditional office spaces, with vacancy rates remaining below 7%, even as the broader office market struggles with rising vacancies. Moreover, rent growth for medical office buildings is outpacing inflation, with annual increases of 2% to 3% in many markets.
“Medical office buildings offer the kind of stability that investors need during inflationary times,” Waun says. “These properties are essential, and the demand for healthcare services continues to grow. As inflation pushes up costs, medical offices are able to pass those increases along through higher rents, making them a perfect inflation hedge.”
Outperforming Inflation: Why Farms and Medical Offices Lead the Way
Both farm land and medical office buildings have several key characteristics that make them powerful inflation hedges:
Essential Demand: Food production and healthcare are essential services, meaning that demand for these assets remains high regardless of economic conditions. This ensures stable cash flows even during inflationary periods.
Positive Correlation with Inflation: Farm land benefits directly from rising commodity prices, while medical office buildings can increase rents in line with inflation, ensuring that their income streams keep pace with rising costs.
Asset Appreciation: Both farm land and medical office buildings tend to appreciate in value over time, providing investors with both income and capital gains. According to NAREIT, medical office properties have delivered average annual returns of 9.2% over the past decade, outpacing inflation by a significant margin.
Long-Term Leases: Medical office tenants typically sign long-term leases with inflation adjustments, providing reliable, predictable income streams that grow over time. Farm land leases, too, can be structured to include inflation-linked rent escalations.
"Both asset classes provide the inflation protection that investors need right now," says Waun. "With food prices rising and healthcare demand growing, Farm Land and Medical Office real estate are two of the safest, most reliable ways to protect against inflation."
A Safe Bet in an Inflationary World
As inflation continues to affect global markets, investors are wise to seek out asset classes that offer protection from rising prices. Farm Land and Medical Office buildings stand apart as two of the strongest inflation hedges in real estate, with both sectors benefiting directly from the economic forces driving inflation.
For investors looking to not only weather the storm but also thrive in an inflationary environment, these two sectors offer a unique combination of stability, income growth, and long-term appreciation.
"In a world where inflation is eroding the value of other investments, Farm Land and Medical Office buildings are two of the few places where you can actually beat inflation," Waun concludes. "These assets don’t just keep up with inflation—they outperform it."
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