Real estate income yields (cap rates) have a relationship over time to Baa Corporate Bond yields.
They are both credit sensitive and credit worthy.
The average historic cap rate/bond ratio is 108%. When this measurement is higher by more than one standard deviation, real estate is considered “undervalued,” and when this measurement is lower by more than one standard deviation, real estate is considered “overvalued.” The current ratio, 120%, indicates that real estate is attractively priced, and is gaining traction – increasing from 113% the previous quarter, and from the prior two quarters. This is a positive and noteworthy indicator, as the ratio is now considered in “undervalued” territory.
Source : CBRE Global Investors