Real estate income yields (cap rates) have a relationship over time to Baa Corporate Bond yields. They are both credit sensitive and credit worthy, and can provide a much better measurement of relative value compared to the more popular spread analysis. The average cap rate/bond ratio is 107%. When this measurement is higher by one standard deviation, real estate is considered "undervalued"; and when this measurement is lower by one standard deviation, real estate is considered "overvalued". The current ratio (124%) indicates that real estate is attractively priced. Over the last quarter, the ratio fell back to Q3 2012 levels due to a slight uptick in corporate bond yields as well as a slight decrease in average cap rates.
Source : CBRE Global Investors