Economic Factors Affecting Property Returns
What Every Investor Needs to Know
Property has long been considered one of the most resilient asset classes. Bricks and mortar carry an appeal that goes beyond spreadsheets: the security of a tangible asset, the potential for regular income, and the chance of long-term appreciation
Key Economic Factors
Interest Rates and the Cost of Capital
Perhaps the single most influential factor.
Low rates
borrowing is cheaper, yields attractive, demand rises.
High rates
higher debt costs, reduced cash flow, fewer viable deals.
Always stress-test
investments against rate rises.
Inflation and Real Value of
Returns
Inflation can help
rents rise and protect
value, but it also
increases expenses.
Maintenance, materials, utilities,
and financing all become more
costly.
If rental growth lags behind
inflation, net returns shrink.
Smart investors track the “real” return — income after inflation.
Inflation shapes both income and expenses — the real
skill lies in measuring returns after inflation, not just in
nominal terms
Employment and Wage Growth
Tenant demand depends on
job markets.
Strong
employment
higher demand,
resilient rents.
Rising
unemployment
arrears, longer voids,
rent pressure.
Monitor local employment trends, not just property prices.
Supply and Demand Imbalances
Basic economics applies to property:
High demand
restricted supply
rents and values rise.
Oversupply
more competition, lower rents, weaker returns.
Look beyond marketing brochures — is the area under-supplied or overbuilt?
Supply and demand drive property values — knowing
where the balance lies is key to stronger returns.
Government Policy and Taxation
Regulations and taxes reshape margins overnight.
Stamp duty changes, landlord licensing, tax relief
restrictions…
Even profitable assets can lose returns if rules change.
Stay updated, adapt structures, and consider diversification.
Government Policy and Taxation
Crises like 2008, Brexit, or COVID-19 can transform markets.
Tourism-reliant and city-centre rentals struggled in lockdowns. Suburban and regional areas saw increased demand.
Look beyond marketing brochures — is the area under-supplied or overbuilt?
Global shocks reshape markets overnight —
flexibility and diversification are the
investor’s strongest shields.
What This Means for Investors
Economic drivers evolve constantly, but understanding them helps investors
move from reactive to proactive:
- Stress-test deals for rate rises and cost increases.
- Track local employment trends to spot resilient markets.
- Balance portfolios with strong fundamentals.
- Stay agile with policy and regulatory shifts.
- Plan long term — property is a marathon, not a sprint.
Property investment is as much about economics as it is about bricks and mortar. The most successful investors understand the forces shaping returns and position themselves ahead of the curve.
Want to see how these factors affect your portfolio?
Book a discovery call with Akoya today.