Negative Real Interest Rates Are Here to Stay: Implications for Real Estate Performance

Because of unprecedented debt levels accumulated by developed governments, a negative real interest rate environment is likely to persist for the long-term.

Many developed nation governments have breached debt levels of over 100% of gross domestic product (“GDP”) since the Global Financial Crisis of 2008-09 (“GFC”) – Canada included at 116%. This is not just a government problem, but a private sector problem as well. Total global debt, which includes households, corporations, and governments, is currently over $303 trillion – representing 351% of global GDP. This means quite simply that with no new debt added, world GDP will have to grow 3.5 times the cost of interest on this debt just to service the interest expense and keep the 350% debt to GDP constant.

Negative real interest rates are here to stay for the long-term as government debt burdens likely cannot be reduced otherwise. Episodes of runaway inflation (similar to the current environment) will need to be tempered to ensure economic and social stability, but inflation will ultimately have to run moderately higher than interest rates. Resultingly, real estate performance should thrive in this environment as the asset class has proven to provide protection against higher inflation and thrive in a longer-term lower interest rate environment.

We invite you to explore our Strategy, Planning and Analytics team’s research to learn about negative real interest rates and their implications for real estate performance.