[Edaily Marketin KIM SUNG-SOO Reporter] Recently, institutional investors (LPs) have been turning their attention to “multifamily (rental housing)” as a real estate asset that can hedge against inflation.

While infrastructure has become more popular than traditional real estate amid prolonged inflation, multifamily properties are highly valued as stable assets similar to infrastructure.

Real Estate ‘Vulnerable’ in a Stagflationary Environment

According to the financial investment industry on the 25th

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institutional investors have recently been evaluating multifamily properties as a stable real estate investment from an inflation-hedging perspective.

Generally, real estate is known as a prime inflation-hedging asset because rents rise in line with inflation. However, analysis suggests that this formula does not always hold true in the actual market.

As inflation intensifies, benchmark interest rates often rise as well. Rising interest rates push up real estate cap rates, which in turn lower asset values.

The cap rate is an indicator used to evaluate the return on real estate investment; it quantifies how much an investor can earn annually from a commercial real estate investment. It is calculated by dividing the net income generated by the property over one year by the purchase price.

Properties with prime locations and low investment risk tend to have lower cap rates, while those in outlying areas or regions with high investment risk tend to have higher cap rates. A “rise in the cap rate” for a specific property indicates that its price has fallen.

In other words, the “decline in asset value” resulting from a rise in the cap rate can outweigh the “rental income increase effect” driven by inflation, and in such cases, the hedge against inflation can be significantly diluted.

Ultimately, it is generally assessed that real estate’s role as an inflation hedge is most effective during a “Goldilocks” phase, characterized by both economic growth and stable inflation. Conversely, it is pointed out that real estate’s protective power can be significantly weakened in a “stagflation” environment, where economic growth slows while inflation rises simultaneously.

Recently, macroeconomic and investment experts have been warning of the risk that the global economy could experience stagflation (an economic downturn accompanied by high inflation). This is because if military tensions between the United States and Iran persist, there is a possibility that rising energy prices could trigger simultaneous increases in inflation, interest rates, and financial market volatility.

The International Monetary Fund (IMF) has slightly revised downward its global economic outlook for this year, citing the energy shock resulting from a potential war with Iran. While the IMF’s global economic growth forecast for this year was 3.1% in April, it has recently lowered this figure to 3%.

Demand for Multifamily Properties Remains ‘Steady’ Due to Their ‘Essential’ Nature

However, unlike other real estate sectors, multifamily properties are considered relatively stable. They are regarded as an exceptional investment opportunity because they are less sensitive to economic cycles and can generate stable cash flow.

First, as residential real estate, multifamily properties are “essential goods” that are necessary regardless of economic conditions. Even during economic downturns, housing demand does not decline significantly, ensuring that rental demand remains stable.

The market environment is also favorable for multifamily properties. In the U.S., as mortgage rates have risen to around 7%, demand for renting rather than purchasing a home outright is growing rapidly.

According to Freddie Mac, a U.S. government-sponsored mortgage agency, the average rate for 30-year fixed-rate mortgages in the U.S. stood at 6.58%, up 0.03 percentage points (p) from the previous week. This marks the highest level in 11 months, since August 21 of last year.

This is a result of renewed tensions in the Middle East following the military clash between the U.S. and Iran, as well as growing concerns over rising inflation due to the rebound in international oil prices. U.S. Treasury yields, which serve as a benchmark for mortgage rates, are also on the rise.

As interest rates rise and the burden of interest expenses increases, a trend is emerging where demand is shifting toward the rental housing market. Analysts note that this trend is supporting the stable cash flow of multifamily assets.

According to Bank of America’s 2026 Homebuyer Insights Report, 58% of respondents cited “high home prices” as the biggest barrier to homeownership. This represents an increase from 46% last year.

Additionally, 47% of respondents cited “high mortgage rates,” up from 40% the previous year.

Another factor recently drawing attention from institutional investors is “replacement costs.” As inflation drives up construction and material costs, the cost of supplying new residential real estate also increases. In this scenario, existing assets that have already been acquired can benefit from increased scarcity, leading to a relative rise in value.

An LP executive stated, “Multifamily assets located in regions with limited new supply are considered the asset class that will benefit most from rising replacement costs,” adding, “As expected returns on real estate assets have declined compared to the past, low-risk loans or loan-to-value (LTV)-based credit investments are being discussed as alternatives to equity investments in real estate.”